Commonwealth Consolidated Acts Commonwealth Consolidated ActsContinuation of security interest in collateral, and attachment to proceeds
(1) Subject to this Act, if collateral gives rise to proceeds (by being dealt with or otherwise), the security interest:
(a) continues in the collateral, unless:
(i) the secured party expressly or impliedly authorised a disposal giving rise to the proceeds; or
(ii) the secured party expressly or impliedly agreed that a dealing giving rise to the proceeds would extinguish the security interest; and
(b) attaches to the proceeds, unless the security agreement provides otherwise.
Note 1: The effect of paragraph (a) is to extinguish the security interest in the collateral if the secured party expressly or impliedly authorised the dealing mentioned.
Note 2: A transferee can also take the collateral free of the security interest because of the operation of another provision of this Act (for example, under Part 2.5).
Enforcement of security interest against collateral and proceeds
(2) If the secured party enforces a security interest against both collateral (other than an investment instrument or an intermediated security) and proceeds, the amount secured by the security interest in the collateral and proceeds is limited to the market value of the collateral immediately before the collateral gave rise to the proceeds.
Note: For the enforceability of a security interest against a third party in relation to proceeds, see also subsection 20(6).
(3) However, subsection (2) does not apply if, at the time of the transfer of the collateral, the transferee has actual or constructive knowledge that the transfer was in breach of a security agreement that provides for the security interest in the collateral.
(4) To avoid doubt, subsection (2) does not affect any right the secured party may have to recover the amount secured without enforcing the security interest.
Priority of proceeds
(5) For the purposes of section 55 (default priority rules), the time of registration or possession in relation to original collateral, or the time of perfection of a security interest in original collateral, is also the time of registration, possession or perfection in relation to the proceeds of the original collateral.
Note: The effect of subsection (5) is that the security interest in the proceeds has the same default priority as the security interest in the original collateral.