The PPSA has a broader application than the Corporations Act 2001 (Cth) company charges system in Chapter 2K that it replaces, when it comes to security interests with a foreign element.
Take, for example, a security interest granted by a foreign (non-Australian) company over collateral located in Australia, or a security interest granted by an Australian company or Australian resident over collateral located outside Australia in a foreign country. Do these security interests need to be registered or otherwise perfected under the PPSA?
The short answer is "yes, in many cases," as explained below.
Below is a picture of an imaginary place called “PPSA Land”. The idea of PPSA Land is to encourage thought about when security interests with a foreign element will have a sufficient connection to Australia to attract regulation under the PPSA.
PPSA Land is the realm where the PPSA applies. It includes Australia, Norfolk Island and prescribed external territories, as well as Christmas Island and the Cocos (Keeling) Islands1. If a transaction that gives rise to a security interest has a sufficient connection to Australia, then the PPSA applies.
A sufficient connection to Australia will exist and a security interest will be regulated by the PPSA in any of the following cases:
(a) collateral located in Australia: regardless of whether the grantor is located in Australia, if the collateral over which a security interest is granted is located in Australia, then the PPSA will apply to the security interest.
The car in the PPSA Land diagram above represents collateral located in Australia over which a security interest is granted. In this case the PPSA will apply to the security interest.
There are special rules about when intermediated securities2 and intangible property3 such as accounts (receivables) and ADI accounts are located in Australia;
(b) Australian grantor: the grantor of a security interest is a person whose principal place of residence is in Australia, or a company or entity which is incorporated in Australia or is a registrable Australian body4. If so, the PPSA applies regardless of where the collateral is located, even if the collateral is located overseas.
The “G” in the PPSA Land diagram above represents a grantor either resident (individual) or incorporated or formed (company or registrable Australian body) in Australia, in which case the PPSA will apply to security interests granted by that grantor.
The “swoosh” through PPSA Land in the diagram above indicates that the PPSA applies either where:
A the grantor is an Australian resident, Australian-incorporated company or registrable Australian body, or
B the collateral is located in Australia.
Once the PPSA applies, the rules in sections 234 to 241 determine which law (Australian law or foreign law) governs the attachment and perfection of the security interest in question. The general rule is that if the collateral is located in Australia then the PPSA will apply to attachment and perfection of security interests. The PPSA still "applies" to collateral located outside Australia, but often the law of the place where the collateral is located is "chosen" to govern attachment and perfection (sections 238 to 241). However, Australian entities can generally choose the PPSA to govern their security interests (section 237).
Notes:
1. PPS Regulations, regulation 1.3
2. PPSA section 6(1A)
3. PPSA section 6(2)
4. PPSA section 6(1)(b) read with the definition of “Australian entity” and section 235(3),(5)
