Appleby Finance Newsletter, Q1 2014: second ranking security under Guernsey law

By Jeremy Berchem

There is no doubt that second ranking security can be taken under the Security Interests (Guernsey) Law, 1993. The process can, however, be somewhat involved and there is often some confusion about the mechanics of doing so.

The law envisages the creation of multiple security interests in the same collateral and states that priority between security interests in the same collateral is determined by the order of creation of those interests (although nothing prevents a secured party from postponing its rights). Issues arise, however, from the mechanisms by which multiple security interests can be created over the same collateral under the law as security may only be taken under the law by way of control, possession or assignment.

As security by control (under section 1[5] of the law) relates only to account security where the account bank is also the secured party, it is unlikely that second ranking security will be created under this section…

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