The Security Interests (Jersey) Law 1983 (the “1983 Law”) governing security over intangible movable property situated in Jersey (eg shares, units, accounts and contractual rights) generally worked well, but had become increasingly outdated in the context of modern banking and finance transactions. The 1983 Law has now been superseded by the Security Interests (Jersey) Law 2012 (the “New Law”), which came into full force and effect on 2 January 2014, following a lengthy consultation and drafting process.
Jersey entities (eg companies, trusts and limited partnerships) are often established as holding bodies for corporate or real estate structures, investment funds and special purpose vehicles. When lending to structures including Jersey entities, secured parties usually take Jersey law security over the shares/securities and other Jersey situs intangible assets of the Jersey entities, which will be governed by the 1983 Law or the New Law depending on when the security was created.
Under the transitional provisions of the New Law, any Jersey law security agreements entered into before 2 January 2014 will generally continue to be governed by the 1983 Law (as long as new collateral is not added to the security agreement and the secured obligations are not substantially increased or fundamentally changed). This ensures grandfathering of 1983 Law security interests. Therefore enforcement of any pre-2014 Jersey law security agreements will continue to be governed by the 1983 Law and there is no requirement for any pre-2014 security interests to be perfected by registration on the Jersey Security Interests Register (which only applies to New Law security interests).
On the other hand, any Jersey law security agreements entered into from 2 January 2014 onwards will be governed by the New Law. The following table compares / contrasts the 1983 Law to the New Law and summarises the main changes between them. As will be clear from the following table, there are a number of advantages to lenders in taking New Law security (even where there is already 1983 Law security in place), particularly in relation to registration and enforcement.
|1983 Law||New Law|
|Scope of Collateral||
Security interest agreement complying with the 1983 Law, as well as:
(a) possession of certificates of title to collateral;
(b) assignment of title to collateral and giving of notice; or
(c) control of bank accounts.
No concepts of attachment or perfection (only creation).
Security interest agreement complying with the New Law, as well as:
(a) attachment by (1) control of collateral or (2) description/identification of collateral; and
(b) perfection by (1) control (according to the statutory definition) of collateral and/or (2) public registration on the Jersey Security Interests Register.
Attachment makes security enforceable against the grantor, whereas perfection makes security enforceable against third parties/during insolvency and ensures priority.
Third party security (ie security granted in support of the obligations of a third party) is not expressly contemplated under the 1983 Law. This issue was usually dealt with by including a limited recourse guarantee or covenant to pay in the security interest agreement.
|The New Law expressly permits third party security.|
|Rights to Deal||The 1983 Law did not expressly provide for the grantor having rights to deal with the collateral (eg secured accounts).||The New Law expressly provides that security is not affected by the grantor having rights to deal with the collateral, substitute equivalent collateral or withdraw excess collateral.|
|Registration||No public registration of security.||Registration of security on an online register open to public searches. Public registration of New Law security at or just before completion has become the usual method for perfecting security.|
|Enforcement||Power of sale was the only enforcement remedy, other than appropriation of monies in a bank account (each requiring 14 days’ notice before enforcement of security where the event of default was capable of remedy).||
Wider enforcement remedies, including:
(a) power of appropriation;
(b) power of sale; and
(c) ancillary actions, such as taking possession or control of collateral or exercising contractual rights.
No 14 day notice period before enforcement of security (assuming this is contracted out of).