Law Offices of John P. Connell, P.C.: In Massachusetts, the holder of a liquor license can pledge his or her license to secure a loan. M.G.L. c. 138, §23. In fact, many banks or other private lenders will not lend money to a licensee or someone seeking to purchase a license without a Pledge. Accordingly, there are several legal requirements a licensee must be aware of, and in compliance with, in order to properly effectuate an enforceable Pledge of his or her liquor license.
“A debtor must comply with both the UCC and [M.G.L.] c. 138, §23 in order to effectuate an enforceable pledge of a liquor license.” Jojo’s 10 Rest., LLC v. Devin Props., LLC, (In re Jojo’s 10 Rest., LLC), 455 B.R. 321, 327 (2011) (Citing In re Dalcon, 120 B.R. 620 (Bank. D. Mass. 1990)). This means that a licensee must comply with the requirements of both Article 9 of the Uniform Commercial Code (UCC) and Section 23 of the Massachusetts General Laws.
The UCC is the law governing the creation of security interests. “To be effective, a security interest must attach to the collateral in question.” Jojo’s 10 Rest., LLC, 455 B.R. at 325 (Citing UCC §9-308(a)). “An attached security interest is perfected upon the filling of a financing statement in the appropriate centralized registry.” Jojo’s 10 Rest., LLC, 455 B.R. at 321. In Massachusetts, that registry is the Secretary of the Commonwealth. A licensee wishing to pledge his or her liquor license can access this UCC Financing Statement on the Secretary of the Commonwealth’s website.
A Pledge must also be approved by the local licensing authority and the Alcoholic Beverages Control Commission (ABCC). “Even if parties do everything required under the UCC to create and perfect a security interest in a liquor license, the alleged security interest will be deemed invalid when the parties fail to obtain the necessary governmental approvals. Hillbilly Ranch, Inc. v. Kahn (In re Wible), 42 B.R. 622 (Bankr. D. Mass 1984). In order to seek approval of a Pledge before the local licensing authority, the licensee wishing to pledge his or her license may fill out a “Petition for Change of License” form and submit it the local licensing authority in the licensee’s municipality. The form should then be forwarded to the ABCC for its approval.
It should be noted that the pledge of a liquor license for a loan is distinct from the pledge of a liquor license to secure a commercial lease; the latter of which is prohibited under Massachusetts law. A pledge of a license to secure a lease is not allowed under M.G.L. c. 138, §23. For this reason, a liquor license cannot be pledged to a landlord seeking to lease his restaurant or bar space to a licensee-tenant, but only for valid loans.
© Law Offices of John P. Connell, P.C., 2014.