Introduction
Main changes
Comment
The Security Interests (Jersey) Law 1983 governing security over intangible movable property in Jersey (eg, shares, units, accounts and contractual rights) has been in force for almost three decades. While the 1983 law is a concise and clearly drafted law which has generally worked well, it has become increasingly outdated in the context of modern banking and finance transactions.
The 1983 law will soon be replaced by the new Security Interests (Jersey) Law, which has recently been passed by the States of Jersey and is expected to come into force in early 2012.
Jersey entities (eg, companies, trusts and limited partnerships) are often established as holding bodies (eg, for real estate or operating groups), investment funds and special purpose vehicles. When lending in structures including Jersey entities, banks and other lenders usually take Jersey law security over the shares and offshore assets of the Jersey entities (as well as security over any underlying onshore assets).
An increased amount of financing and refinancing activity involving Jersey entities is anticipated once the new law comes into force in 2012, especially as this coincides with European debt of between €50 billion and €75 billion being due to mature and come to market for refinancing over the next five years.(1)
The table below compares and contrasts the 1983 law with the new law and summarises the main upcoming changes.
|
|
1983 law |
New law |
|
Scope of collateral |
|
|
|
Creation, attachment and perfection |
Security interest agreement complying with the 1983 law, as well as:
No concepts of attachment or perfection (only creation). |
Security interest agreement complying with the new law, as well as:
Attachment makes security enforceable against the grantor, whereas perfection makes security enforceable against third parties and ensures priority. |
|
Third-party security |
Third-party security (ie, security granted in support of the obligations of a third party) is not expressly contemplated. This issue is usually dealt with by including a limited recourse guarantee or covenant to pay in the security interest agreement. |
Third-party security is expressly permitted. |
|
Rights to deal |
The law does not expressly provide for the grantor having rights to deal with the collateral (eg, secured accounts). |
The law expressly provides that security is not affected by the grantor having rights to deal with the collateral. |
|
Registration |
No public registration of security. |
Registration of security on an online register open to public searches (public registration is expected to become the usual method for perfecting security, except where there are confidentiality concerns). |
|
Enforcement |
Power of sale is the only enforcement remedy (requiring 14 days' notice before enforcement of security where the event of default is capable of remedy). |
Wider enforcement remedies, including:
No 14-day notice period before enforcement of security (assuming this is contracted out of). |
As will be clear from the table above, there are a number of potential advantages to lenders in having security under the new law once in force (in particular, in relation to public registration and enforcement). There will be grandfathering of security interests created under the 1983 law, so existing security interest agreements (SIAs) will not have to be amended or publicly registered once the new law comes into force. However, in many cases lenders will wish to improve their position by requiring that existing SIAs be amended or replaced once the new law comes into force (eg, in reliance on further assurance provisions in existing documentation referring to the new law).
For further information on this topic please contact Bruce MacNeil at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email ([email protected]).
Endnotes
(1) "Refinancing 2011: The Scramble to Refinance European Debt", Debtwire, March 2011.
