What Is an Article 9 Sale and Who Ends Up Owning My Business Assets in 2026?

Once you have defaulted on a loan that is secured by property of your business, the bank’s attorneys will likely start using that scary “Article 9 sale” phrase. It may not seem like it, but it is pretty simple. “Article 9” is the chapter of the Uniform Commercial Code that provides a mechanism by which a secured lender can sell property securing its loan when the business has defaulted, and then apply the proceeds from the sale against the business’s outstanding obligation. The secured party can hold the sale public or private. The UCC gives the secured creditor significant flexibility in selling the collateral, as long as the sale is commercially reasonable and the secured creditor acts in good faith.

Bottom line for you, the small business owner, who gets the goods? In a public sale, whoever buys the stuff buys it. Then the proceeds go to pay down your balance with the lender. In a private sale, the buyer could be a related party, such as a new corporation that continues to operate your business. That is the type of sale that courts scrutinize more closely, and it can be challenged by your other creditors. Therefore, knowing the steps, the notice requirements and the content of the notice, will put you in a better position to know what is occurring to your business.

Take Possession of the Collateral

At a minimum, a lender who seeks to sell collateral should ascertain that it has a perfected security interest in the collateral, that the collateral has sufficient value after taking into consideration any liens (such as tax liens) or prior perfected security interests (for example, purchase money security interests) of other creditors, and that the lender either has possession of the collateral or that the debtor does not object to the lender taking possession of the collateral for sale. If the debtor will not release the collateral to the lender voluntarily, or if the debtor resists the lender, then the lender may have to file an action to recover possession of the collateral. UCC § 9-609 allows a secured party to take possession of the collateral through judicial process or, where there is no breach of the peace, without judicial process. Either way, the lender probably has to take possession before it can sell anything.

Notice of the Sale

The lender must send the notice of the sale to the debtor, all senior and junior lien holders, and all secondary obligors, such as guarantors. The lender should run or update its lien search 20 to 30 days prior to the notice date. If a junior federal tax lien exists, the notice must be sent to the IRS no fewer than 25 days prior to the sale. Failure to identify a tax lien may subject both the lender and the buyer to significant liability for the remaining lien. If no junior IRS lien exists, the lender must provide a minimum of ten days’ notice of the sale to all parties entitled to receive notice. Ten days is sufficient notice under the UCC, but the security agreement may provide for a longer notice period. If you have personally guaranteed the loan, then you are a secondary obligor as well and should be receiving notice.

This notice must include: a description of the debtor and secured party; a description of the collateral; the manner of sale; a statement that the debtor is entitled to an accounting of the unpaid debt; and the time and place of the sale if the collateral is to be sold publicly, or the date after which the collateral will be sold privately. If you’re a business owner, these rules are important to you. The notice will tell you how the collateral is to be sold and when, and it will tell you that you are entitled to an accounting of the unpaid debt. A secured lender that fails to take the timing and notice steps, or that fails to act in a commercially reasonable manner and in good faith, may be liable for damages. You may not waive the commercial reasonableness standard, even by agreement.

Private Sale

A private sale can present special risks and is not generally recommended. Courts view private sales with more scrutiny than they do public sales because a public sale is considered the best indicator of the market price and because there is less of a risk of a collusive sale. In Milliken & Co. v. Duro Textiles, LLC (Mass. 2008), a corporation sold its collateral in an Article 9 private sale to a new version of itself. The court ruled that the private sale had been made in bad faith and the new corporation still owed the pre-sale debts of the old corporation. It also suggested that the secured lender could be liable for the seemingly collusive sale to other parties.

In the case of an over-leveraged business where all of the assets of the business are encumbered, an attorney for the debtor or a “white knight” purchaser may suggest that the senior lender liquidate the assets in a private sale to a friendly purchaser. A friendly sale is where the borrower sells the business assets to an affiliate, who then continues the business free of trade liabilities and junior liens.

A private friendly sale appears to be a neat and clean way to get out of a sticky loan and for everyone to move on. However, the senior lender should be very cautious before agreeing to that type of workout, and you as the business owner should realize why. If your lender won’t go near a private sale to someone related to you, it’s not because they don’t want a solution, it’s because of the things mentioned here. Junior secured creditors, unsecured creditors and even equity holders can fight a private sale if they suspect that the assets were sold for less than a fair price, since they received nothing from the sale and did not have an opportunity to bid on the assets at a public auction. A lender who did a challenged sale can find itself litigating for years, with no opportunity to recover attorneys’ fees. The whiff of collusion is even stronger if the lender loans money to the new company to buy the assets, effectively “following” its lien to the new company.

So who gets the assets? Upon an Article 9 sale, the buyer is the new owner of the collateral and the proceeds of the sale go to the secured debt. At a public sale the buyer is the highest bidder, and at a private sale the buyer may be a related company. The private sale will be subject to the closest scrutiny by the courts and other creditors. The bottom line is that an Article 9 sale needs to be done the right way, and a private sale to a related buyer should be looked at twice.