- 26.1 Accession, processing and commingling of goods
- 26.2 The difference between accession, commingling, processing and manufacture
- 26.3 Example of processing or manufacture by diagram
- 26.4 Accession of goods
- 26.5 Processing, comingling and manufacture of goods
- 26.6 Priority of competing security interests that each continue into the product or mass
- 26.7 Relationship between security interests over goods continuing into a product, and existing security interests that attach to the product
- 26.8 PMSIs continuing into product or mass retain their super priority
- 26.9 Proceeds of the product or mass
- 26.10 Identification of proceeds in ADI accounts
If more than one perfected security interest over goods continues in a product or mass upon the goods being processed or comingled, subject to the PMSI exception (see paragraph 26.037 and below), they share the product/mass rateably in proportion to the value of the obligations they secure, but in each case the secured obligations are limited to a maximum of the value of the goods that they attached to before being processed or comingled into the product or mass1.
Section 102(4) of the PPSA provides that secured obligations for these purposes are limited to the value of the goods on the day the goods became part of the product or mass. This is to prevent a large secured party whose outstanding debt far exceeds the value of the goods their security interest attached to, swamping and diluting other smaller secured parties.
Interestingly, the PPSA does not try to determine the priority between competing perfected security interests over goods that continue into a product or mass by their respective priority times in the different original goods they attached to – instead they simply appear to share the product or mass rateably.
The same rule applies if multiple unperfected security interests over goods continue into the product/mass2.
If both perfected and unperfected security interests continue into a product or mass, naturally the perfected security interests defeat the unperfected security interests, but again, their priority is limited to the value of the goods they attached to before being processed into the product3. Unperfected security interests may well get a small share of the product or mass if there has been significant value added in the production process.
