Nigel Pearmain and Chris Le Quesne review Jersey’s revised security interests regime
The revised Security Interests (Jersey) Law was approved by the States of Jersey on 19 July and has been passed to the Privy Council for approval. The new law is designed to provide enhanced certainty and flexibility and is expected to come into force in the early part of 2012.
The previous security interests regime was governed by the Security Interests (Jersey) Law 1983, pursuant to which security could be created over intangible moveable property. The practical use of the law was often to charge shares as a condition of lending agreements – in other words to effectively mortgage shares in a company that were held by the borrowers as an additional form of security for the lender.
The previous law was notable for being relatively uncomplicated in application, but as time went by it was suggested that the island’s security interests regime was due for an update.
In particular, other jurisdictions such as the US, Canada and New Zealand have developed centralised registers of security interests whereby an interest can be recorded and viewed once it had been created. The systems put in place by these jurisdictions have influenced the development of the provisions that will apply when the new law comes into force.
Protect and server
The key change resulting from the new law will be the creation of a centrally maintained register of security interests that will be accessible to the public. The register will be accessible via a web-based interface that will be similar to the existing system operated by the Companies Registry in Jersey.
The general public will be able to undertake simple searches to find security interests, while registered users will be able to obtain more detailed search results as well as register and maintain notices of security interests.
Registration will be carried out by completing the information fields available on the web interface. It is to be expected that the information captured by this process will become more sophisticated as the system develops in the coming years. In many cases registration will serve to perfect the security interest, but in some cases registration will be essential, for example where security is effected by the identification of collateral in an agreement rather than by possession or control.
The provisions of the law will extend beyond the creation of the register. New methods for the creation of security interests are included in the law. Security over bank accounts can be created by transferring the account into the name of the secured party or assigning title to the account to the secured party. Alternatively, the bank holding the account could agree to act on the secured party’s instructions or the secured party could be the bank itself.
Security over a custody or securities account can also be created by transferring the account into the name of the secured party. If an intermediary maintains the account it could agree to act on the secured party’s instructions if it is not the secured party itself.
An investment security can be created by the secured party either being registered as holder or taking possession of the certificate representing the investment security. Security over a negotiable instrument or investment security can be created by the secured party taking possession of instrument or relevant certificate. Security without transfer of title can be created by the collateral described in agreement and the registration of the security interest.
Under the new law it will be possible to attach security interests to all intangible moveables acquired by the debtor over time. This mechanism will be similar, but not identical, to a floating charge.
Powers of appropriation will be available under the revised law and the secured party may also take ancillary actions in support of enforcement. It will be possible to exclude by agreement the 14-day statutory grace period concerning enforcement.
The new law will clarify expressly that a retained right of the grantor to deal with the collateral shall not necessarily invalidate the security interest. Additionally, third party security will be expressly permitted.
The transition from the previous law will be catered for by the new law so that existing security interest agreements are not invalidated due to the new regime. It should be noted that any amendments to existing agreements made by way of conformity with the new law could result in the activation of additional requirements including, inter alia, registration.
The new law is wider and more complex than its predecessor, but it will bring the island’s security interests regime into line with developing international standards in the field.
Nigel Pearmain is a partner and Chris Le Quesne is a trainee at Voisin