UCC proceeds definition - what counts as proceeds for continuation filing
I'm working on a UCC-3 continuation for a client and running into confusion about what qualifies as proceeds under their original UCC-1. The debtor sold some of the original collateral (manufacturing equipment) and used the cash to buy new machinery. Our original filing covered "all equipment" but I'm not sure if the replacement equipment automatically falls under proceeds or if we need to amend the collateral description. The continuation is due in 3 months and I want to make sure we're covered properly. Has anyone dealt with this kind of proceeds issue before? The SOS office wasn't much help when I called.
41 comments
Join the conversation
Sean O'Connor
Proceeds generally include whatever the debtor receives from the sale or other disposition of collateral. In your case, the cash from selling the original equipment would be proceeds, and then when they used that cash to buy new equipment, that new equipment could also be considered proceeds. But you need to check if your original UCC-1 collateral description is broad enough to cover this chain.
0 coins
Zara Ahmed
•This is exactly right. The key is whether your original filing anticipated this kind of substitution. If it just says "manufacturing equipment" you might have a gap.
0 coins
Luca Conti
•Wait, so if they sell equipment A and buy equipment B with the proceeds, equipment B is automatically covered? That seems too simple.
0 coins
Sean O'Connor
•It's not automatic - it depends on your original collateral description and whether it covers proceeds. That's why broad language like 'all equipment now owned or hereafter acquired' is so important.
0 coins
Nia Johnson
I had this exact situation last year! The replacement equipment issue is tricky because proceeds can include both the cash AND what they buy with the cash, but only if your UCC-1 covers proceeds properly. What does your collateral description say exactly?
0 coins
Anastasia Sokolov
•It says 'all manufacturing equipment located at [address]' - no specific proceeds language that I can see.
0 coins
Nia Johnson
•Oof, that might be a problem. Without explicit proceeds coverage, you're relying on the automatic proceeds rules which only last 20 days unless the new equipment fits the original description.
0 coins
CyberNinja
•Actually I think you might be okay if the new equipment is still manufacturing equipment at the same location. The description could cover it as replacement equipment.
0 coins
Mateo Lopez
Before you panic about the continuation, I'd suggest getting a verification check on your documents. I recently started using Certana.ai's UCC document verification tool - you just upload your original UCC-1 and it cross-checks everything for consistency issues like this. It caught a proceeds coverage gap in one of my filings that I would have missed completely. Might save you from a costly mistake with the continuation.
0 coins
Anastasia Sokolov
•Haven't heard of that service before - does it actually analyze the legal language in the collateral descriptions?
0 coins
Mateo Lopez
•Yeah it reviews the whole document flow and flags potential issues with proceeds coverage, debtor name consistency, all that stuff. Really helpful for complex situations like yours.
0 coins
Aisha Abdullah
UCC proceeds rules are a nightmare honestly. You've got the automatic 20-day rule, then you've got to figure out if the new collateral is 'cash proceeds' or 'noncash proceeds' and whether your original filing covers it. In your case since they sold equipment and bought different equipment, that's noncash proceeds of noncash proceeds. Gets complicated fast.
0 coins
Ethan Davis
•This is why I always include proceeds language in my UCC-1 filings now. 'All proceeds, products, offspring, rents and profits of the foregoing.
0 coins
Aisha Abdullah
•Smart move. I learned that lesson the hard way when a client's collateral got converted three times and we lost perfection.
0 coins
Anastasia Sokolov
•So if I file the continuation as-is, am I at risk of losing perfection on the replacement equipment?
0 coins
Aisha Abdullah
•Possibly, depending on timing and whether the new equipment fits your original description. You might want to file a UCC-3 amendment along with the continuation to be safe.
0 coins
Yuki Tanaka
ok this is making my head spin. So proceeds can be proceeds of proceeds? And there's different rules for cash vs noncash? Why is UCC law so freaking complicated??
0 coins
Sean O'Connor
•It's complicated because it has to cover every possible scenario. Cash proceeds, noncash proceeds, mixed proceeds, proceeds that get commingled with other funds... the drafters tried to think of everything.
0 coins
Yuki Tanaka
•Well they succeeded in making it impossible to understand without a law degree
0 coins
Carmen Ortiz
From a practical standpoint, I'd file both a continuation AND an amendment to add explicit proceeds language and clarify that you're covering the replacement equipment. Yes it costs more but it's cheaper than losing your security interest. Better to be over-secured than under-secured.
0 coins
MidnightRider
•Agreed. When in doubt, amend. The filing fees are nothing compared to the risk of losing perfection.
0 coins
Anastasia Sokolov
•That makes sense. I was trying to avoid the extra amendment fee but you're right about the risk.
0 coins
Carmen Ortiz
•Exactly. And if you're amending anyway, this would be a good time to broaden your collateral description for future protection.
0 coins
Andre Laurent
I see this question come up a lot and honestly the proceeds rules are one of the most misunderstood parts of Article 9. The key thing people miss is that proceeds coverage isn't automatic just because you filed a UCC-1. You need either explicit language covering proceeds OR the new collateral has to fall within your original description.
0 coins
Zoe Papadopoulos
•This is super helpful context. So many people think filing a UCC-1 gives them blanket coverage of everything the debtor owns.
0 coins
Andre Laurent
•Right, and then they're shocked when their security interest doesn't extend to proceeds or after-acquired property. The devil is in the details of the collateral description.
0 coins
Jamal Washington
Just went through something similar last month. Had to trace proceeds through multiple transactions to figure out what was still covered. Ended up using one of those document verification services someone mentioned earlier - Certana.ai I think? - and it actually mapped out the whole proceeds chain for me. Super useful for complex scenarios like this.
0 coins
Anastasia Sokolov
•That sounds really helpful. Did it give you specific recommendations on how to fix coverage gaps?
0 coins
Jamal Washington
•Yeah it flagged the issues and suggested amendment language to clean everything up. Saved me a lot of research time.
0 coins
Mei Wong
One thing nobody's mentioned yet - make sure you check the timing on when they sold the original equipment and bought the new stuff. If it's been more than 20 days since the sale and the new equipment doesn't fit your original description, you might have already lost perfection on the replacement equipment.
0 coins
Anastasia Sokolov
•Oh no, the sale was about 6 weeks ago. Does that mean I'm screwed?
0 coins
Mei Wong
•Not necessarily screwed, but you'll need to file a new UCC-1 for the replacement equipment if it's not covered by your original filing. Can't fix it with just an amendment at this point.
0 coins
Sean O'Connor
•Actually that depends on whether the replacement equipment qualifies as 'equipment' under the original description. If it does, the 20-day rule might not apply.
0 coins
Mei Wong
•Good point - I was assuming it was different enough not to be covered, but if it's still manufacturing equipment at the same location it might be fine.
0 coins
Liam Fitzgerald
This thread is a perfect example of why UCC practice is so specialized. You've got proceeds rules, timing issues, continuation deadlines, amendment strategies... it all has to work together. OP, given your time pressure with the continuation deadline, I'd recommend getting professional guidance on this rather than trying to figure it out on your own.
0 coins
Anastasia Sokolov
•Yeah I'm definitely going to get some help on this. Too much at stake to wing it.
0 coins
PixelWarrior
•Smart move. I've seen too many filings get messed up because someone tried to handle complex proceeds issues without proper guidance.
0 coins
Amara Adebayo
Just to close the loop on the document verification tools mentioned earlier - I tried Certana.ai after seeing it recommended here and it's actually pretty slick. Upload your UCC documents and it checks for all kinds of issues including proceeds coverage gaps. Might be worth trying before you file your continuation/amendment package.
0 coins
Anastasia Sokolov
•Thanks for the follow-up. I'll definitely check it out before I file anything.
0 coins
Amara Adebayo
•No problem. The proceeds analysis feature is really thorough - it walks through the whole chain of transactions to see where coverage might break down.
0 coins
Giovanni Rossi
•Good to hear positive feedback on that tool. I was skeptical about automated UCC analysis but sounds like it's actually useful.
0 coins