Michigan Special Tools Lien Act - Greater Protection For Tool, Die & Molding Shops

Author: David S. Lefere
Date: 11/14/2006

A consistent problem tool and die shops in Michigan face is obtaining payment for completed work, short of holding the tool hostage or moving to a COD policy. The enactment of Michigan's Special Tools Lien Act (STLA) has provided tool and die shops with a new weapon to use in the battle of accounts receivables. However, in order for the STLA to be an effective weapon, tool builders must know and understand the mechanics of the STLA.
The STLA, effective June 27, 2002, created liens in favor of companies that design, develop, manufacture or assemble special tools. In order to perfect a lien under the STLA, tool builders must permanently record on every special tool it fabricates, repairs or modifies, the tool builder's name, street address, city and state. They must also file a UCC financing statement with the State of Michigan. The statute allows tool builders to obtain priority secured creditor status on their tools for which they have not yet received payment, even if they are no longer in possession of the tool because it has been delivered to the customer.
Under the STLA, tool builders have the ability to foreclose on their liens and repossess the tools as long as proper notice under the statute is given to both the customer and the end user. This ability to repossess tools usually will prove to be an effective collection mechanism because such tools generally are critical to a customer?s production schedule. The additional protection afforded to the tool builders under the STLA can be useful during supplier bankruptcies and other financially distressed situations, as well as improve the ability of builders to collect accounts receivable. The STLA is still a fairly new law and only time and case law will tell how the statute develops. But, there is no disputing that the statute provides greater protection to tool builders.
Successfully creating and enforcing a lien under the STLA can make the difference between being paid in full and receiving nothing when a customer or supplier becomes insolvent. To take full advantage of the benefits of the STLA, tool builders must ensure that they are doing everything properly under the statute. This can only be done with a clear understanding and working knowledge of the STLA and other related Michigan statutes.