Imagine this: A lender, confident in its documentation, makes a secured loan to a borrower and takes a security interest in a portfolio of digital assets—only to learn, months later, that its “first priority” lien is no longer first priority. Why? Because the borrower’s jurisdiction of organization adopted certain amendments to the UCC (including the new UCC Article 12), and, while the lender perfected its security interest by filing a UCC-1 financing statement, it failed to update its strategy or documentation prior to the applicable UCC Article 12 transition deadline. Meanwhile, another secured creditor—faster to adapt—perfected its security interest by “control” of those same assets under the UCC Article 12 regime just after the transition period ended. The result? That first lender was leapfrogged in priority by the new, better-positioned creditor and may be left out in the cold in an enforcement scenario, if the value of the digital assets is insufficient to satisfy both debts. The bottom line: Missing the UCC transition period deadline is not just a technical oversight—it could quietly undermine the security interest priority of lenders relying on digital assets, causing them to lose millions in collateral value.
Secured parties and obligors with digital asset collateral, take note:
The UCC Article 12 transition deadlines are more than calendar entries—they are defining moments for risk and value across portfolios. For secured parties (for instance, a lender under a secured credit facility), delay could place the priority of your collateral at risk, which may limit your recoveries. For debtors (for example, borrowers and other obligors under secured loan facilities), failure of your lender to maintain a first-priority perfected security interest in its collateral could mean a breached covenant, a breached bringdown representation or warranty and possibly an event of default.
If you are a secured party with security interests in assets that may include “controllable electronic records” (CERs) —for instance, crypto and other digital assets—the perfection landscape may be shifting beneath your feet. Here is what you need to know, and—more importantly—what you need to do.
As digital assets increasingly enter the mainstream, more and more debtors have rights, title or interests in digital assets and other CERs that could be pledged as collateral. In 2022, as part of an effort to maintain clarity in secured transactions law involving digital assets, the Uniform Law Commission (ULC) published certain proposed amendments (the 2022 UCC Amendments) to the Uniform Commercial Code (UCC), including anew Article 12 governing CERs, as well as corresponding amendments to Articles 8 and 9. (Although the 2022 UCC Amendments also address “controllable accounts,” “controllable payment intangibles” and “electronic money,” those are outside the scope of this discussion.)
Although New York has not yet adopted the 2022 UCC Amendments, numerous states and territories, including Delaware and the District of Columbia have done so – and not every state that has adopted the 2022 UCC Amendments in a form consistent with the ULC’s recommended form. Because the UCC is a creature of state law, secured parties should be mindful that the transition deadline described in this piece differ from state-to-state. In addition, for parties that have opted into UCC Article 8 (i.e., electing to treat digital assets and other CERs as financial assets held by a securities intermediary), the applicable transition period may not be immediately relevant to their secured transactions. Nevertheless, it is critical that secured parties assess their potential exposure and risks, including because so-called “all assets” liens also could include security interests in assets that are characterized as CERs, even if they were not previously categorized as such.
The transition period for the perfection of security interests in CERs.
The 2022 UCC Amendments in the ULC’s recommended form contemplate a transition period, with a goal of giving secured parties a much-needed time window during which to align their collateral packages with the new UCC regime. Typically, the transition period would be at least one year from the date on which the 2022 UCC Amendments take effect in that state, but not earlier than July 1, 2025. During this period, security interests that were valid and perfected under the “legacy” UCC rules continue to be recognized, providing secured parties with a buffer to update documentation or perfect under the new rules without immediately losing priority or perfection status. In many cases, prior to the adoption of UCC Article 12, digital assets were treated as general intangibles under UCC Article 9 (for instance, absent a UCC Article 8 opt-in).
While states have adopted the 2022 UCC Amendments on a staggered basis and thus have differing transition periods, states that were early adopters of the 2022 UCC Amendments have “adjustment dates” in July or August 2025 that mark the end of the transition period.
Why the transition deadline matters for secured parties
The end of the proposed transition period in various states is fast approaching or, in some cases, already has arrived. For example, in Delaware, the adjustment date was July 1, 2025 (i.e., the later of (x) July 1, 2025, or (y) one year after August 18, 2023, the date on which the 2022 UCC Amendments became effective in Delaware).¹
As such, many secured parties may be faced with a fast-approaching requirement to act. Failing to strategize for the end of the transition period can undo the best-intentioned compliance efforts.
Effect on the first-to-file rule:
The “first-to-file” rule—which generally gives priority to the creditor that filed first or first perfected their security interest—continues to apply through the transition period. If you properly perfected a security interest before the 2022 UCC Amendments through a UCC-1 filing (or another authorized method), that priority is preserved during the transition window. However, once the transition period ends, new perfection requirements under UCC Article 12 (such as “control” for CERs) will apply fully. If a secured party has not satisfied any such updated requirements by the deadline, that secured party risks losing the priority of its security interest in CERs—even if such secured party were previously first to file or first to perfect under the UCC prior to adoption of the 2022 UCC Amendments.
In short:
- Security interests perfected before the effective date retain their priority during the transition period.
- Secured parties must take action to maintain that priority under the new regime by the end of the transition, even though they will remain perfected by their existing UCC-1 filing (or other authorized perfection method).
- After the adjustment date (for example, July 1, 2025, or later), failure to perfect according to the new rules can result in loss of priority status, opening the possibility for competing secured parties to leapfrog the original secured party through “control” or other updated methods under UCC Article 12.
New rules of engagement: perfection and “control”
UCC Article 12 brings transformations that every debtor and secured party must understand: For covered digital assets, “perfection” by UCC-1 filing alone will rarely be enough to establish priority going forward. UCC Article 12 focuses on “control”—a concept similar to holding the private key or having effective practical authority over the asset.²
If a secured party cannot demonstrate “control” as defined by UCC Article 12, it may lose priority—even if it has a filed financing statement. For many lenders, this means that legacy filings and agreements need to be reviewed, amended, and, in most cases, actively updated.
Multi-jurisdictional complexity
Many U.S. states have adopted the 2022 UCC Amendments, including Delaware, the home jurisdiction of the vast majority of U.S. business entities (and, therefore, debtors). In addition, UCC Article 12 contains its own choice of law waterfall governing perfection for non-U.S. debtors, with the District of Columbia being the default jurisdiction in most cases. The District of Columbia has adopted the 2022 UCC Amendments, and the transition period ended July 1, 2025.³
However, the reality is that not every state has adopted the 2022 UCC Amendments – and those that have, have not necessarily adopted them in the ULC’s recommended forms.4 Certain key commercial jurisdictions, such as New York, have different rules, at least for now.5 Moreover, in 2019, Wyoming adopted UCC changes analogous to – but different from – the 2022 UCC Amendments.6 In addition, certain other jurisdictions, including South Dakota, adopted versions of the 2022 UCC Amendments that differ from the ULC model recommendations.7
Practical steps for secured parties – now and for the future:
- Conduct a digital asset security interest audit: Catalogue all existing credit relationships and security arrangements involving collateral that may include digital assets or other CERs. When doing so, it is important to identify, among other things:
- Where is your debtor located (i.e., jurisdiction of organization or, in the case of a natural person, residence)?
- How and where is the digital asset collateral maintained and controlled—specifically, is it held via a third-party custodian, via self-custody or through an on-chain structure, such as a smart contract)
- What law governs your collateral documents (e.g., your security agreement, any account control agreement, etc.).
- What rights, title, and interests does your debtor currently have in the relevant collateral? (For instance, has the debtor separately opted into UCC Article 8 in connection with its digital assets or other CERs being held by a third-party custodian? If a custodial arrangement applies, what is the legal and technical framework applicable to such custody?)
- How has any existing security interest in the relevant collateral been perfected (e.g., filing or control)
- Evaluate your collateral: Determine if any portion of the collateral constitutes a CER and is governed by the laws of a state that has adopted the 2022 UCC Amendments.
- For any such CER, consider whether you have a valid path to perfection by “control” under UCC Article 12.
- For collateral that is not a CER, a similar analysis and action plan may be warranted if it is a “controllable account”, “controllable payment intangible” or “electronic money” under UCC Article 9 in any state that has adopted the 2022 UCC Amendments.
- Review and update your perfection strategy:
- Where possible, amend your collateral documents to reflect the 2022 UCC Amendments. (Particular consideration should be given if any such collateral documents are governed by the laws of a state that has not yet adopted the 2022 UCC Amendments and your collateral includes CERs governed by the laws of a state that has enacted UCC Article 12.)
- Take any necessary actions to perfect your security interests in any CERs (or other relevant digital assets) by “control” and—where needed—refile or amend UCC-1 financing statements.
- Consider whether to opt into UCC Article 8 with respect to any such CERs held by a securities intermediary.
- Coordinate with your legal and deal teams: Get state-specific and cross-border legal input and document your compliance and perfection approach in real time – and maintain ongoing communication with your debtors.
- Monitor law and guidance: Best practices and technology—including tokenization and custody solutions—are evolving alongside the law. Stay actively engaged with trusted counsel and industry bodies.
The expiration of various UCC Article 12 transition periods marks a key milestone in a still-developing legal landscape. For both secured parties and debtors, the time for attention— and, potentially, action—is now.
Joshua Ashley Klayman is U.S. Head of Fintech and Head of Blockchain and Digital Assets, New York at the law firm of Linklaters.
Danelle Le Cren is Partner and Head of U.S. Banking Group, New York at Linklaters.
Michael Bassett is a banking partner in Linklaters’ New York office.
John Hwang is a Partner in the Linklaters’ U.S. Structured Finance Practice.
Philip Lee is a banking partner in Linklaters’ New York office.
Jessica Blatz is a counsel in the banking group in the firm’s New York office.