Hedge Fund Glossary

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Perfect / Perfection

what a holder of a Security Interest (i.e., the Lenders) has to do to make that Security Interest enforceable against third parties. A Security Interest that is valid and enforceable but has not been Perfected is enforceable against the debtor but not third parties. In order for a Security Interest to be enforceable against other creditors of the debtor, including any Bankruptcy trustee, Perfection is required. While parties can create a Security Interest that is valid between the parties simply by executing a Security Agreement and giving value, typically Perfection requires another act. There are five basic methods of perfection under Article 9: filing of a financing statement, control, possession (either directly or through a third party), temporary perfection and automatic perfection. The easiest and most common method of Perfection is the filing of a financing statement. Filing a financing statement is sufficient to Perfect a Security Interest in most (but not all) UCC Collateral.

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