Perfection
The legal status that protects an attached security interest against later lien creditors, including the debtor's bankruptcy trustee. Perfection establishes the secured party's place in the priority queue.
Perfection is the legal status that protects an attached security interest against later lien creditors, including the debtor's bankruptcy trustee. Without perfection, a security interest is enforceable against the debtor but vulnerable to defeat by intervening creditors and trustees. Perfection establishes the secured party's place in the priority queue.
Methods of perfection
Filing (§ 9.310): the default method, accomplished by filing a UCC-1 financing statement. Available for most types of collateral.
Possession (§ 9.313): perfection by the secured party taking and retaining possession of tangible collateral. Available for goods, instruments, money, tangible negotiable documents, and tangible chattel paper. Certificated securities are perfected by delivery under § 8.301.
Control (§ 9.314): perfection by the secured party obtaining "control", a defined term, over deposit accounts, investment property, letter-of-credit rights, virtual currencies, electronic chattel paper, and electronic documents. The control mechanism varies by collateral type. For a deposit account as original collateral, control is the only method, and the same is generally true of letter-of-credit rights (§ 9.312(b)).
Automatic perfection: certain narrow categories perfect automatically without filing or possession, most notably, purchase money security interests in consumer goods other than goods covered by a certificate-of-title statute (§ 9.309(1)).
Continued perfection in proceeds (§ 9.315)
A security interest in identifiable proceeds is perfected if the interest in the original collateral was perfected. It becomes unperfected on the 21st day after it attaches to the proceeds, with three exceptions. Perfection continues if a filed financing statement covers the original collateral, the proceeds are collateral that can be perfected by filing in the same office, and the proceeds were not acquired with cash proceeds. It also continues if the proceeds are identifiable cash proceeds, or if the interest in the proceeds is perfected by another method when it attaches or within 20 days after.
Recurring perfection failures in Texas commercial workouts and bankruptcies include debtor name errors on UCC-1 filings, lapsed continuations, failure to perfect against deposit accounts through control agreements, or failure to maintain perfection through name changes and reorganizations.