Deposit Account Control Escrow Architecture for Consignment Cash Proceeds Tracing Protocols
A structured DACA lockbox architecture segregates consignment proceeds at collection, preserving UCC Article 9 cash security priority against lender liens.
Springing Control Daca
Meaning
A tripartite legal agreement between a borrower, a secured lender, and a deposit bank establishes that the borrower maintains access to their funds until a specified event of default occurs, at which point the lender assumes exclusive control of the account. This springing control daca is a standard requirement in asset based lending and distribution finance, as it balances the borrower’s operational needs with the lender’s security interests. This arrangement protects the lender’s collateral while allowing the borrower to run their business.
Control Activation
The shift in control is triggered when the lender delivers a formal notice of exclusive control to the deposit bank. Upon receipt of this notice under the springing control daca, the bank stops honoring the borrower’s payment instructions and directs all remaining funds to the lender’s account. This rapid transfer prevents the borrower from diverting cash during a default.
Account Administration
Before the trigger is pulled, the borrower manages the account as a standard operating account, paying suppliers and receiving customer payments. The presence of the springing control daca does not interfere with daily cash flows, reducing the administrative burden on the borrower. This lack of daily interference makes the agreement highly popular in commercial finance.
Default Enforcement
If the borrower fails to meet their obligations, the lender’s ability to freeze the account secures the remaining cash collateral. This enforcement mechanism is essential for reducing the loss given default on the credit facility. This protection encourages lenders to offer more favorable interest rates to borrowers.