Currently, over thirty states and the District of Columbia have enacted the amendments, and New York — arguably the most consequential jurisdiction for large syndicated credit facilities and fund finance facilities — enacted the package effective June 3, 2026, with a transition period running through June 2027 for pre-existing transactions. For asset-based lenders and fund finance lenders, the practical question is no longer whether Article 12 matters, but rather how it affects diligence, perfection and priority analysis, and documentation in new and existing transactions.

Asset-based lending (ABL) facilities are built around a borrowing base of receivables, inventory, and increasingly, other assets, with lenders' comfort resting heavily on certainty of perfection and the ability to enforce quickly following a default. As the use of digital assets becomes more prevalent, it is increasingly important for lenders and their counsel to understand the framework of the 2022 Amendments and the evolving legal landscape surrounding digital assets. The same is true for fund finance facilities: lenders and their counsel should understand this framework not only when digital assets are included in the underlying asset pool, but also as such assets are used more frequently in connection with capital call rights, fund interests and capital movements.

This article addresses (1) the core Article 12 concepts secured lenders should understand, (2) how the revised Article 9 perfection and priority rules operate for CER collateral, and (3) practical implications for ABL and fund finance credit facilities.

Key Concepts

(a) Controllable Electronic Records (CERs). Article 12 creates a new category of personal property—the CER[2]—defined functionally rather than by reference to any particular technology. The UCC defines a CER as “a record stored in an electronic medium that can be subjected to control”. UCC § 12-102(a)(1). In practice, this covers many cryptocurrencies, many non-fungible tokens (NFTs), and certain tokenized instruments. The definition of a CER excludes certain asset types that already have distinct UCC rules such as deposit accounts, traditional electronic money and investment property. UCC § 12-102(a)(1). If an electronic record cannot be subjected to control, it is outside the scope of Article 12.

(b) Perfection and Control. The central innovation of Article 12 is "control," as it applies to CERs, modeled on control regimes already used for investment property and electronic chattel paper. A person has “control” of a CER if, among other requirements, that person (i) has the power to avail itself of substantially all the benefit from the record, (ii) has the exclusive power to prevent others from availing themselves of substantially all the benefit from the record and to transfer control of the record to another person, and (iii) can readily identify itself in any way (including by name, identifying number, cryptographic key, office or account number) as having such powers. UCC § 12-105(a).  

The amendments to Article 9 via the 2022 Amendments create parallel, asset-specific perfection and priority rules for CERs. A secured party may perfect a security interest in a CER in either of two ways:

Perfection by filing: a UCC-1 financing statement may still be filed against CER collateral, exactly as it is filed against other general intangibles today. Filing remains an effective means of perfection under both the old and new regimes.

Perfection by control: the secured party obtains “control” of the CER.  Under the 2022 Amendments, a security interest in CERs perfected by control has priority over a conflicting security interest in CERs without control (e.g. if perfected by filing alone). UCC § 9-326A. 

The amendments establish an explicit priority preference for control over filing: a security interest perfected by control has priority over a security interest perfected only by filing, even if the filing occurred earlier. This mirrors the treatment long applied to other assets such as investment property. For lenders, this means that (assuming application of the 2022 Amendments) a UCC-1 filing—however diligently searched and however early in time—does not protect against a subsequent secured party who obtains control of the same CER collateral.

(c) Take-Free Rights. The 2022 Amendments also extended certain so-called “take-free” rights to CERs that are analogous to the rights of a holder in due course of a negotiable instrument, or a protected purchaser of a security. A purchaser of a CER that obtains control of the CER for value, in good faith, and without notice of a claim of a property right in the CER—who Article 12 terms a “qualifying purchaser”—takes its interest free of a claim of a property right in the CER. UCC § 12-102(a)(3), 12-104(e). The rationale was to permit CERs to circulate as media of exchange or investment, without innocent holders of CERs needing to be concerned about rights of earlier upstream holders. Further, the 2022 Amendments extend the same take-free rights to certain receivables that are evidenced by CERs and as to which the account debtor has undertaken to pay the person who controls the CER, creating the functional equivalent of a tokenized negotiable instrument. Such receivables are termed “controllable accounts” (CAs) and “controllable payment intangibles” (CPIs). UCC § 9-102(a)(27A), (27B); see UCC § 12-104, Official Comment 10.

Practical Implications

(a) Governing Law Considerations. Because several states have not (as of the date of this article) adopted the 2022 Amendments, choice of law considerations can arise that can affect the perfection and priority treatment of CERs. Under Sections 9-306B and 12-107 of the 2022 Amendments, except with respect to perfection by filing (which would still be governed by the jurisdiction where the debtor is located), the “local law of the controllable electronic record’s jurisdiction”, as specified in Article 12, governs perfection and priority of the CER. 

Section 12-107(c) of the 2022 Amendments sets forth a waterfall for determining governing law for purposes of Article 12: 

1. If a CER (or a record attached to or logically associated with the CER) expressly designates a jurisdiction as the CER’s jurisdiction for purposes of Article 12, that is the CER’s jurisdiction.
2. If not, the analysis looks to the system in which the CER is recorded and whether that system specifies a jurisdiction for the CER for purposes of Article 12. 
3. If neither applies, the analysis looks to whether the CER (or a record attached to or logically associated with it) expressly provides that the CER is governed by the law of a particular jurisdiction.
4. If not, the analysis then looks to whether the system specifies a jurisdiction whose law governs the CER. 
5. If none of these rules applies, the CER’s jurisdiction is the District of Columbia. 

While the stated governing law of a security agreement will generally govern creation of a security interest, the rules for which state’s laws will govern perfection and priority may depend on where a suit is brought and on the jurisdiction of organization of the underlying debtor. For example, in a dispute involving the UCC between two competing creditors (one who filed a financing statement against a CER, and another who obtained “control” of the same CER), the result could depend both on the forum and on the jurisdiction in which the debtor is organized. 

If a suit is brought in a jurisdiction such as California, New York or Delaware that has enacted the 2022 Amendments (or a variation thereof), then the court would apply the Article 12 waterfall for governing law set forth above. If none of the waterfall prongs apply, then the District of Columbia would be the CER’s jurisdiction, the 2022 Amendments would apply (because DC has adopted them), and we would expect the secured party who perfected by control to have priority. But if instead the subject CER or its system designates a non-Article 12 jurisdiction for the CER, then a non-Article 12 state’s law would govern and we would expect the secured party who filed a financing statement first to win the priority contest. 

If the same suit was brought in a non-Article 12 jurisdiction such as Texas, the courts of that state would follow the governing law provisions in its UCC with respect to perfection and priority (generally, Sections 9-301-9-307 of the UCC) which would generally point to the jurisdiction of organization of the debtor. In that case, the legal result of who wins the lien dispute would likely depend on whether the debtor was organized in an Article 12 jurisdiction (in which case we would expect “control” would result in superior priority) or a non-Article 12 jurisdiction (in which case we would expect the first to file to have priority).

Similar conflicts of law issues may attend the CER take-free rights. If a Texas borrower grants a security interest under a Texas law security agreement in assets that would be CERs if Texas were to adopt Article 12 (bitcoin, for example), and the secured party perfects against that bitcoin by filing against the borrower’s general intangibles, then a theoretical issue may arise if the borrower later sells that bitcoin to a qualifying purchaser in an Article 12 state like Delaware and where the facts point to Delaware law under amended UCC Section 12-107. Do the Texas perfected security interests travel with the bitcoin (the likely pre-2022 Amendment rule for sales of general intangibles), or do they get cut off by the qualifying purchaser’s take-free rights (the post-2022 Amendment rule for CERs)? Determining whether Texas law or Delaware law applies may require a fact-intensive conflicts of law analysis, but one that can be outcome-determinative.

The fact that many states have not yet adopted the 2022 Amendments creates the potential for differing governing-law analyses and priority outcomes. This provides a strong practical reason for lenders and their counsel to consider both (i) filing a UCC-1 covering applicable CERs as early as possible, and (ii) obtaining “control” of those CERs, as well as for scrutinizing diligence procedures and enhancing reps regarding competing liens.

(b) ABL Considerations. At the outset of new ABL deals, lenders and their counsel should consider including and referencing CERs, CAs and CPIs in diligence questionnaires and perfection certificates, as well as disclosure exhibits to the security documents, to determine whether a loan party owns or has rights to any such collateral, similar to the treatment of other UCC collateral types that may require special perfection steps.

If an ABL facility includes digital assets—such as cryptocurrency reserves, tokenized inventory certificates, or tokenized receivables—in the borrowing base, the legal categorization of those assets, collateral diligence, choice-of-law analysis, perfection and priority, and eligibility criteria will be critical. These considerations will help ensure that the appropriate steps are taken to perfect and protect the lender’s security interest.

And, lawyers must bear in mind that what isn’t a CER can be just as important as what is. As noted above, the definition of CER excludes important categories of collateral such as securities and other investment property, and deposit accounts. With the exception of CAs and CPIs, even if a CER in some way evidences another asset, such a “tethered” underlying asset does not get the benefit of the CER’s control perfection, priority and take-free rights. See UCC §12-104(f). So, for example, if a collateral pool includes “tokenized” securities, it is possible that the asset may be comprised of more than one UCC piece: a CER (which can be dealt with under the Article 12 rules) used to transact on a blockchain, together with a separate security or security entitlement (to which the usual UCC Article 8 perfection and priority rules apply). Lawyers must look into the technical structure of tokenized collateral and seek expert technical advice as needed, to ensure that their perfection and control mechanisms reflect that structure.

But even with no digital assets in the borrowing base, ABL lenders should consider whether they want to include language in security documents requiring notice of acquiring any interest in CERs and taking actions requested by the lender to provide the lender with control over the CER, similar to concepts often found in security agreements today with respect to other asset classes such as investment property in securities accounts and electronic chattel paper. And for existing deals, lenders may consider whether a security agreement should be updated accordingly (for example, upon an amendment to the facility), particularly if there may be material digital assets included in the all asset collateral grant.

(c) Application to Fund Finance Credit Facilities. The issues arising from the gradual adoption of the 2022 Amendments are equally relevant to fund finance transactions, including subscription-line facilities secured by capital commitments and NAV facilities secured by a fund's underlying investment assets. These issues are relevant not only when the underlying asset pool contains digital assets, but also as fund structures increasingly explore tokenized capital call rights, tokenized fund interests and stablecoin-denominated capital movements. Particularly if the legal landscape gains more uniformity and certainty with respect to treatment of CERs, it is easy to imagine the expansion of these fund finance products into the digital asset space, with potential benefits from the speed and efficiencies that can be derived from these electronic mechanisms, which will make familiarity with the 2022 Amendments a necessity.

Final Thoughts

UCC Article 12 gives secured lenders, for the first time, a coherent statutory path to perfect and protect security interests in digital assets. A key takeaway from the framework is the ability to obtain “control” of the CER collateral as a superior means of perfection, rather than relying solely on a UCC-1 filing. Further, the take-free rights available to qualifying purchasers of CERs may provide additional assurance that such digital assets are free of other claims, and in the case of CAs and CPIs may make the digital versions of such assets better collateral than their non-tokenized cousins. Secured lenders and their counsels should be familiar with the framework of the 2022 Amendments and should consider updating their diligence and documentation practices to account for this new asset class. 

Given the gradual adoption of the 2022 Amendments, because many states have not yet adopted the amendments, a careful legal analysis is necessary to ensure the correct legal framework is being applied. If adoption of the 2022 Amendments approaches uniformity across the states, this may well encourage further use of digital assets in financings, particularly in fund finance credit facilities, in which case, understanding the Article 12 framework will become increasingly important.