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Proceeds of Security Agreements – Clint Coles

May 6, 2017 by Clint Coles

CCSecurity agreements are a safety mechanism for business. The most well-known security agreement is a mortgage.  A mortgage is commonly applied to land. The essence of a mortgage is that if you don’t repay the bank, they can sell your land to repay themselves.

But security agreements of a similar effect apply to personal property as well – that is, property other than land. Security agreements over personal property are important where you sell goods on trading credit or a vendor finance basis.

A well drafted security agreement will give the person wearing the credit risk a right to repossess and resell the goods supplied on credit (and often any other goods held by the debtor).

One of the beauties of the security arrangement is that it does not normally end with those original goods provided on credit. It can continue in the proceeds generated by those goods.

To take a simple example, if you sell a vehicle to a first buyer on a secured credit arrangement, and, the first buyer on sells the vehicle to a second buyer, you have a number of choices against both buyers if your security documents are in order.

Firstly, exercising your power of attorney over the first buyer’s bank accounts you may be able to directly access the cash proceeds of the sale.

Alternatively, if the first buyer took the cash out of the bank and purchased a boat with those same monies, you may be able to repossess the boat.

If the first buyer was involved in an accident and wrote off the vehicle, you may be able to access the insurance proceeds directly from the insurer.

Separately, you may be able to take and repossess the vehicle directly from the second buyer, now in possession of it.

However, your interest in the proceeds ceases once the proceeds are no longer identifiable or traceable. To take proceeds you must be able to follow an item of property directly as it is transformed into other items of property. There must be a close and substantial connection between the two pieces of property so that the property rights in the original, flow through to the subsequent.

Enforceable personal property securities are accordingly very useful to businesses. If we can help with any security arrangements, contact us at Everingham Solomons Solicitors because Helping You is Our Business.

Click here for more information on Clint Coles.

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