Where collateral is brought into Australia (relocated to Australia), that usually creates a connection to Australia which in many cases makes any security interest that existed over the collateral in another country then subject to the PPSA. It is then highly likely that the security interest must be perfected under the PPSA. To assist secured parties in this circumstance, the PPSA grants temporary perfection for a short period to secured parties to allow them time to perfect their security interests over collateral that is brought into Australia.

If a transaction that would be a security interest under the PPSA is entered into in another country in relation to collateral (for example, coffee beans) located in that other country (for example, Papua New Guinea (PNG)), and then the collateral (coffee beans) is brought into Australia, on certain conditions the security interest will be taken to be valid, enforceable and perfected up to the time the collateral enters Australia. Then, from the time the collateral enters Australia the security interest will be taken to be temporarily perfected under the PPSA for a short period to allow the secured party time to complete actual perfection under the PPSA here in Australia.

There are at least three steps to relocations of collateral, as follows.

First, the PPSA applies its own three enforceability criteria to a foreign (PNG in the example) security interest to determine whether the security interest was valid in the foreign jurisdiction before the collateral entered Australia, being¹:

1. 1. attachment²; 
   2. enforceability against third parties; and
   3. perfection.

In the example of a security interest granted in PNG over coffee beans located in PNG to say a PNG bank, the coffee beans then being imported into Australia, the PPSA looks for the above three “enforceability” criteria (attachment, enforceability against third parties, and perfection) to have been established under PNG law for the foreign security interest in question.

In relation to perfection, the PPSA tries to accommodate the fact that all legal systems are different, and not
all countries will have ideas of perfection. In place of perfection, the PPSA looks for any one of the following alternatives: 

The PPSA requires some level of “enforceability against the world at large” in the foreign country where the security interest was granted before that foreign security interest will be credited with being enforceable against third parties and perfected under the PPSA in Australia up to the time the collateral entered Australia.

Second, assuming the foreign (PNG) security interest can be shown to have been attached, enforceable against third parties and either:

1. 1. perfected under the law of the foreign country in question (PNG law);

   2. publicly registered or recorded in that foreign country (PNG); or

   3. otherwise enforceable against third parties generally in that foreign country (PNG in the example),

then the PPSA will recognise the status of the security interest under the foreign law, and take the security interest to have been continuously perfected for PPSA purposes dating back to the time when it was first perfected, publicly registered or recorded, or otherwise enforceable against third parties in the relevant foreign country (PNG)³.

The idea here is to establish a priority time for the foreign security interest in case various foreign security interests exist over the collateral that becomes relocated to Australia, such that a priority dispute develops.

Third, assuming the first two hurdles are passed and the foreign (PNG) security interest is taken for PPSA purposes to have been continuously perfected under the foreign (PNG) law at the time the collateral is relocated to Australia, then from the time the collateral enters Australia, the PPSA sets up a grace period during which the security interest will be temporarily perfected under the PPSA.

Such foreign security interests over collateral relocated to Australia are temporarily perfected for five (5) business days from the time the secured party actually learns (actual knowledge) that the collateral (coffee beans from PNG in the example) has been brought into Australia⁴. This is subject to a long-stop date of 56 days. That is, foreign security interests over collateral relocated to Australia are temporarily perfected for a maximum period of 56 days, and must be perfected within 56 days after the collateral enters Australia, regardless of whether the secured party knows the collateral is in Australia⁵.

There is a further layer of complexity for intangible and financial property (but excluding intellectual property, ADI accounts and negotiable instruments) that is subject to a foreign security interest and is relocated to Australia. Intangible and financial property (but excluding intellectual property, ADI accounts and negotiable instruments) that is transferred to a person located in Australia, or relocated to Australia, only becomes subject to the PPSA rules on relocation of collateral if the perfection of the foreign security interest becomes governed by Australian law upon the relocation of the collateral to Australia. The PPSA’s rules about when Australian law governs the perfection of security interests in relocated intangible and financial property are in Part 7.2 of the PPSA. They are not discussed here.

Intellectual property, ADI accounts and negotiable instruments are subject to the normal relocation rules described above that apply to all other relocated collateral. Namely, there is no need first to determine whether perfection of a foreign security interest in intellectual property, ADI accounts or negotiable instruments becomes a matter to be determined by Australian law upon relocation of the collateral to Australia. This is because the PPSA expressly provides that perfection becomes a matter for Australian law for this type of collateral, and is regulated by the PPSA upon relocation of the collateral to Australia.

As above, assuming the security interest was validly perfected or otherwise enforceable in the foreign jurisdiction before the intellectual property, ADI account or negotiable instrument was relocated to Australia, a security interest over this property is temporarily perfected for five (5) business days from the time the secured party actually learns (actual knowledge) the collateral is in Australia, subject to a maximum temporary perfection period of 56 days from the time the collateral enters Australia⁶.

Summary of temporary perfection rules upon relocation of collateral to Australia

Provided the security interest was attached, enforceable against third parties and validly perfected or otherwise enforceable in the foreign jurisdiction before the collateral entered Australia, the PPSA will credit the security interest with having been perfected up to the time the collateral entered Australia. However, to preserve continuous perfection for the security interest once the collateral has entered Australia, the PPSA requires perfection of the foreign-created security interest in Australia under the PPSA within five (5) business days of the secured party actually learning (actual knowledge) that the collateral has been relocated to Australia⁷. In any event such security interests must be perfected within 56 days of the collateral entering Australia⁸.

For intangible property and financial property other than intellectual property, ADI accounts and negotiable instruments, the PPSA relocation rules as outlined above will apply to require perfection of the security interest in Australia if the PPSA rules about the law governing security interests provide that Australian law governs the perfection of security interests granted over the relevant intangible property or financial property relocated to Australia (see Part 7.2 of the PPSA).

When is collateral located in Australia?

The general rule is that property is located for PPSA purposes where it is situated.

Slightly tricky situations arise when trying to determine the location of things like corporations, persons and property like shares or bonds (investment instruments or intermediated securities under the PPSA).

Corporations are located in the place of their incorporation¹⁰. Natural persons are located in the place
of their principal residence (not citizenship). If shares or bonds are evidenced by certificates, then they are located in the country where the certificates are located¹¹.

If shares or bonds are not evidenced by certificate (for instance, because they are listed on a prescribed financial market such as the ASX), then shares and bonds are located in the country whose laws govern their transfer¹².

The location of collateral is not the only connecting factor to enliven the application of the PPSA to a security interest. Any security interest granted by an Australian company or a registrable Australian body over collateral located in an overseas jurisdiction would be subject to the PPSA, and need to be registered or otherwise perfected under the PPSA¹³. This is because the PPSA applies where there is a sufficient connection to Australia, which will be present either when the grantor of a security interest is an Australian company or registrable Australian body, or the collateral is located in or has a connection to Australia¹⁴.

Where security interest transactions have a foreign element (foreign grantor and collateral located in Australia, or Australian grantor and collateral located overseas), double registration or perfection, in both Australia and relevant overseas jurisdictions, is likely to be common.