UCC Article 12
Louisville | Lexington | Southern Indiana
Enacting UCC Article 12 in Kentucky
The 2022 Amendments to the Uniform Commercial Code are certain to be enacted in Kentucky by the 2023 Legislature. The UCC is the primary body of commercial law governing everything from payment systems to letters of credit and secured transactions. Although every Article of the UCC is updated for the digital age, an entirely new Article 12 focuses on digital assets in the form of controllable electronic records.
Digital assets such as virtual currencies and non-fungible tokens (NFTs) are a distinct new form of intangible personal property, and existing commercial rules do not provide the certainty required for transactions involving them. In fact, many existing rules, developed in other times for other types of assets, have the effect of discouraging transactions in digital assets.
Holding and Transferring Digital Assets
The 2022 UCC Amendments provide a property regime for holding and transferring digital assets based on the concept of “control,” which can be easily accomplished using blockchain technology. A person in control of a digital asset has essentially the same rights as a person in possession of a physical asset – the right to take advantage of the asset’s benefits, to prevent others from taking advantage of the asset’s benefits, and to transfer the asset’s benefits to another person. The amendments also provide in Article 9 a set of rules, also based on control, that will facilitate the use of digital assets as collateral in financing transactions.
John T. McGarvey, a shareholder with Morgan Pottinger McGarvey, is Chairperson of the Uniform Law Commission’s UCC Committee and serves on its Enactment Committee for the 2022 Amendments. His law practice concentrates on the representation of banks in matters governed by the UCC.
Contact us today to learn more about the changes and how to implement UCC Article 12 at your bank.