Valuing Commingled Inventory Stock Asset Recovery under Restructuring Stays
Valuing commingled inventory under stays requires deducting unmingling costs and secured lender haircuts from gross landed cost before allocating pro-rata recovery
UCC 9 336
Meaning
Section of the Uniform Commercial Code governing the priority of security interests in commingled goods. Legal advisors use ucc 9 336 to determine the rights of lenders when different items are combined into a single mass or product. The rule ensures that a lien continues into the final mixture.
Statutory Provision
Law establishes that a security interest is not lost because the collateral has been mixed. Under ucc 9 336, the interest attaches to the resulting mass in proportion to the value of the original input.
Mixture Priority
Conflicts between multiple lenders are resolved based on the relative cost of the components. If several parties have a claim under ucc 9 336, they share the value of the final product pro rata.
Collateral Value
Calculation of the interest is capped at the value of the goods at the time they were commingled. The rules of ucc 9 336 do not allow a lender to claim the entire value of a finished assembly if their input was only a small part. This limitation protects the equity of the producer and other stakeholders, and it ensures a predictable outcome for the financiers of raw materials.
The priority of the interest depends on the perfection of the original lien before the mixing occurred.