Temporary perfection is "automatic perfection" which the PPSA applies to certain classes of security interests for fairness. Temporary perfection applies for short periods to give secured parties an opportunity actually to perfect under the PPSA, so that continuous perfection (and so the original priority time) is preserved.

Temporary perfection is relevant mainly to:

1. Transitional security interests
2. Proceeds
3. Transfers of collateral
4. Relocations of collateral to Australia

(a) Transitional security interests: transitional security interests are security interests in personal property that arise under security agreements entered into before the commencement of the PPSA in early 2012.

Transitional security interests are automatically perfected without any act by the secured party for up to two years following the commencement of the PPSA in early 2012. This is the two year transition period for security interests which exist before the commencement of the PPSA in early 2012. The two year transition period permits secured parties under transitional security interests time actually to perfect under the new PPSA system by either registration, possession or control, which they must do by 2014.

(b) Proceeds: security interests automatically attach to proceeds generated upon disposals of collateral, but must also be perfected against proceeds. Security interests are temporarily perfected against proceeds for five (5) business days¹.

Proceeds include all identifiable or traceable personal property in which the grantor has an interest and which are derived directly or indirectly from a dealing with original collateral or a dealing with proceeds of the original collateral² – proceeds include “proceeds of proceeds”³.

If not identifiable, proceeds must be what the PPSA describes as “traceable”. It is unclear to what extent the elaborate body of (predominantly) equitable tracing and identification principles developed where trust or other fiduciary property is comingled into a mixed fund would apply to inform the meaning of “traceable”. The PPSA has identification rules to deal with situations where goods are processed or comingled into a product or mass, however, these identification rules apply only to goods⁴.

A wide registration against the original collateral will perfect a security interest against proceeds as well if the proceeds fall within the same classes of collateral as the original collateral⁵. Alternatively, a registration can cover all proceeds generated from original collateral, or nominate specific classes or items of proceeds.

If the registration that perfects a security interest does not cover proceeds, the secured party has five (5) business days from the proceeds being generated to perfect against the proceeds. Security interests are temporarily perfected against proceeds for five (5) business days⁶. Perfection against proceeds within five (5) business days will preserve the continuous perfection of a security interest, and therefore preserve the original priority time of the original collateral as against the proceeds⁷. Perfection against proceeds is discussed in more detail commencing at paragraph 17.8.1 below.

(c) Transfers of collateral: special temporary perfection rules apply where:

1. collateral is transferred (sold or leased); 
2. security interests attached to the collateral are not extinguished by the transfer; and
3. security granted by the buyer of the collateral (either existing all-assets security that attaches to after-acquired property once acquired by the buyer, or new security) attaches to the transferred collateral.

This is because there is then a priority contest between the security interests granted by the seller, and the buyer, both of which attach to the transferred collateral.

A secured party who takes a security interest granted by the seller of collateral (original secured party) and whose security interest is not extinguished by the transfer, is temporarily perfected against the buyer for up to 24 months, assuming the buyer has not granted, and does not grant, any security interests that also attach to the collateral acquired⁸.

If the buyer of collateral has granted a security interest which attaches to the transferred collateral, then a perfected original secured party (of the seller) has the benefit of temporary perfection against the buyer as follows⁹:

(d) Relocations of collateral to Australia: security interests granted in overseas jurisdictions over collateral located outside Australia, where the collateral is later brought into Australia, are on certain conditions temporarily perfected for five (5) business days from the time the secured party actually learns (actual knowledge) that the collateral has been brought into Australia¹². This is subject to a long-stop date of 56 days - foreign security interests over collateral relocated to Australia must be perfected within 56 days after the collateral enters Australia, whether the secured party knows the collateral is in Australia or not¹³.

There are various other conditions that apply before temporary perfection will be extended to foreign security interests over collateral relocated to Australia. There are also special rules for intangible and financial property (but excluding intellectual property, ADI accounts and negotiable instruments). Perfection as it relates to relocations of collateral to Australia is discussed in more detail below commencing at paragraph 17.11.1.