## Facts

- Parco Merged Media Corp. owned shares of MultiSpectral Solutions, Inc., evidenced by a stock certificate registered in Parco’s name.
- CrossHill Georgetown Capital LLP loaned Parco $600,000 secured by Parco’s interest in the MultiSpectral shares.
- Bruce L. Rothrock, Sr. acquired CrossHill’s interest and took possession of the stock certificate, thereby perfecting a security interest in the certificated security by possession under Maine’s UCC.
- After a merger, MultiSpectral redeemed the shares for cash; the stock certificate was surrendered to effect the redemption.
- Scott Cohen—who was Parco’s treasurer—handled the redemption paperwork, signed in his corporate capacity as Parco’s treasurer, and directed that redemption funds be transmitted to the “holder” reflected on the certificate (Parco).
- The redemption agent wired the proceeds into Parco’s corporate bank account.
- Parco filed a Chapter 7 bankruptcy case, and John C. Turner was appointed trustee.
- After the bankruptcy filing, Rothrock caused most of the funds in Parco’s bank account to be transferred to Rothrock’s personal account, asserting entitlement based on his prior security interest in the stock certificate.
- The trustee sued to recover the funds as estate property and as an unauthorized post-petition transfer; the bankruptcy court granted summary judgment for the trustee.
- Rothrock appealed; the district court reviewed the summary judgment ruling de novo and affirmed.

## Issues

1. Whether a security interest perfected by possession of a certificated security remains perfected after the certificate is surrendered and the shares are redeemed for cash.
2. Whether the secured party held a perfected security interest in the cash redemption proceeds deposited into the debtor’s bank account without obtaining UCC “control” of that deposit account.
3. Whether the trustee could treat the proceeds as unencumbered property of the bankruptcy estate and recover the post-petition transfer to the secured party.

## Decision

- The district court affirmed summary judgment for the trustee.
- Rothrock’s perfection by possession ended when the certificated security was surrendered and the shares were redeemed, extinguishing the collateral in certificated form.
- Rothrock did not perfect any security interest in the cash proceeds once they were deposited into Parco’s bank account because he lacked “control” over the deposit account as required for perfection.
- The proceeds in Parco’s account were property of the estate, and the trustee could recover Rothrock’s post-petition transfer of those funds.

## Legal Principles

- A security interest in a certificated security may be perfected by possession of the certificate, but that method of perfection is tied to the continued existence of the certificated collateral.
- When certificated stock is redeemed and the certificate surrendered, the original collateral is replaced by cash proceeds, and perfection does not automatically continue in the new collateral form.
- A security interest in funds in a deposit account generally requires perfection by “control” of the deposit account (e.g., depository bank status, customer status, or a control agreement), not merely a prior perfected interest in different collateral.
- In bankruptcy, the trustee may prevail over unperfected security interests and treat unperfected proceeds in the debtor’s deposit account as estate property, allowing recovery of unauthorized post-petition transfers.

## Conclusion

The court held that possession-based perfection in a stock certificate did not survive redemption into cash and did not perfect an interest in proceeds held in the debtor’s bank account absent control, so the trustee could recover the post-petition transfer of those proceeds as property of the estate.


Rothrock v. Turner, 435 B.R. 70 (D. Me. 2010)