Super Priority Notice Execution against Senior Lenders for Inventory Consignments
Super priority consignment notices must reach senior lenders before distributor gate receipt to defeat pre-existing floating liens under UCC Article 9.
Floating Lien
Meaning
Security agreement covering a constantly changing pool of assets attaches automatically to newly acquired collateral without requiring secondary contracts. Granting a floating lien allows lenders to maintain security over dynamic asset classes like raw materials and dynamic inventory. The encumbrance expands to cover new property acquired by the debtor while releasing individual items sold in the ordinary course of business.
It defines the operational boundary between dynamic commercial trading and static asset pledges.
Collateral Dynamics
Collateral values fluctuate continuously as raw materials convert into finished goods and trade receivables. Under a floating lien, the security interest shifts seamlessly from initial inventory to cash proceeds generated by retail sales. Lenders monitor borrower borrowing bases weekly to ensure collateral value exceeds outstanding loan balances.
Borrowers retain freedom to sell finished goods to end customers without requesting individual lien releases from the secured party.
Inventory Turnover
High-turnover distribution channels rely on dynamic credit structures to fund continuous product intake. A floating lien provides flexible working capital financing without impeding daily warehouse dispatch schedules. Suppliers holding purchase money security interests can carve out specific inventory batches from a broad floating lien by serving prior notice to the primary lender.
Liquidation Priority
Default proceedings trigger the conversion of a dynamic lien into a fixed charge over remaining assets. Enforcing a floating lien enables senior lenders to seize customer accounts and physical warehouse stock during insolvency. Unsecured suppliers whose goods were absorbed into the general inventory pool lose separate ownership claims unless specific statutory exceptions apply.