If original collateral is sold or otherwise disposed of to generate proceeds such as cash in a bank account or an account (receivable), the security interest over the original collateral will automatically attach to those proceeds¹. Security interests must also be perfected against proceeds, which can be done through registration or any other method of perfection.

Secured parties can enforce their security interests against proceeds that remain identifiable or traceable, which may mitigate dissipation of collateral value when collateral is transferred or disposed in unauthorised ways.

In addition, if collateral is transferred and security interests over it are not extinguished, then secured parties can (if the transfer generates proceeds²) enforce their security interest against both the original (transferred) collateral in the hands of a buyer or lessee, and against the proceeds in the hands of the seller or lessor (grantor) of the collateral, limited to the value of the collateral when transferred³. This gives secured parties two funds of property from which to recoup money owed to them, and should maximise recoveries by secured parties.

Prior to the PPSA, if a secured creditor wanted to trace proceeds of disposed collateral, the key remedy was the equitable principle of tracing. Tracing in equity is only available (on the better view) for breach of a fiduciary obligation. Security interests rarely encompass fiduciary relationships except where trust or fiduciary language is used in security agreements, as became common for conditional sales by retention of title.

All security interests trace (attach) to proceeds under the PPSA. The difficulty in trying to enliven the equitable tracing remedy is no longer for security interests governed by the PPSA. See Chapter 14 (Following collateral and value) for discussion.