The Security Interests (Jersey) Law 1983 to be updated – The Security Interests (Jersey) Law 1983 will soon be replaced by the new Security Interests (Jersey) Law, which was passed by the States of Jersey on July 19 2011 and is expected to come into force after Privy Council approval in 2012.
The Security Interests (Jersey) Law 1983 governing security over intangible movable property in Jersey (eg, securities, accounts and contractual rights) has been in force for almost three decades. Although the 1983 law is clear and concise legislation that has generally worked well, it has become increasingly outdated in the context of modern banking and finance transactions.
The explanatory note to the new law states that its central objective is to provide Jersey with a simplified, modern, efficient legal regime for the creation, perfection, priority and enforcement of security interests in intangible movable property. Furthermore, the new law is designed to give Jersey one of the most up-to-date legal regimes in this field and thereby to enhance Jersey’s attractiveness to local and foreign investors.
The new law reflects a simplified form of the personal property securities approach adopted in the United States, Canada, Australia and New Zealand. Therefore, the case law of those jurisdictions is likely to be relevant in future Jersey cases concerning the new law.
Application of Jersey law to security
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 to structures including Jersey entities, secured parties usually take Jersey law security over the Jersey-based assets, such as securities issued by Jersey entities and any Jersey accounts.
The 1983 law provides that no security over intangible movable property (eg, securities, accounts and contractual rights) can be created under Jersey law, except under the provisions of the law. Jersey currently follows English common law conflict of laws principles, applying the law of the jurisdiction in which the assets are situated (ie, the lex situs) to security.
Therefore, under the current law, to ensure that the secured party has enforceable security over intangible movable property situated in Jersey, it is generally recommended that the parties enter into a security interest agreement (SIA) that is governed by Jersey law and that complies with the requirements of the 1983 law.
The new law will apply to both:
- security interests over intangible movable property created after the new law comes into force; and
- continuing security interests created under the 1983 law which are amended (as defined in the new law) after the new law comes into force.
The new law also includes provisions on assignments of receivables by Jersey persons (although those provisions are not analysed in this update).
Article 4 of the new law identifies which intangible movable property is capable of being subject to a security interest under the new law. These rules require a Jersey connection for the new law to apply, such as the securities register or account being maintained in Jersey.
Therefore, after the new law comes into force, to ensure that the secured party has an enforceable security interest over intangible movable property with a Jersey connection under Article 4 of the new law, it is generally recommended that the parties enter into a security agreement that is governed by Jersey law and that complies with the requirements of the new law. The security interest can cover original collateral and any proceeds of dealing with the collateral (ie, identifiable or traceable property that is intangible movable property).
Further, under Article 5 of the new law, two or more persons can agree that, in their relations with each other, the new law will apply to an agreement to which they are a party, providing for a security interest over intangible movable property outside Article 4 of the new law. This would include both:
- an agreement for the new law to apply to an unamended SIA created under the 1983 law; and
- an agreement for the new law to apply to a security agreement providing for a security interest over intangible movable property situated outside Jersey.
However, generally that agreement will affect only the relations between the parties, as opposed to property rights affecting third parties.
The new law does not purport to apply to foreign law security, except to provide that a Jersey person is deemed to have capacity to give foreign law security over property situated outside Jersey (repeating provisions from the 1983 law). Therefore, the requirements of the new law (eg, in relation to perfection and registration) do not apply to foreign law security over property situated outside Jersey (whether granted by a Jersey person or not).
The new law will represent a major development in the Jersey law of security over intangible movable property.
It is anticipated that there would be an increased amount of financing and refinancing activity involving Jersey entities once the new law comes into force in 2012, especially as this coincides with European debt of up to €50 to €75 billion being due to mature and come to market for refinancing over the next five years.
The second stage of the new law will be to extend its provisions to cover tangible movable property (eg, inventory, equipment and consumer goods), although the draft legislation for this is subject to ongoing consultation.
It is likely that the new law will result in a number of substantial changes to market practice in Jersey, namely that:
- secured parties will often seek to take a security interest over all the grantor’s present and future intangible movable property (similar to a floating charge);
- second ranking security interests will become more common;
- it will be usual to register all security interests where it is possible to do so, except where there are confidentiality concerns;
- lenders and their advisers will search the register before negotiating entry into security agreements, and before entering into security agreements, to confirm that there are no competing security interests; and
- it will be market standard for the grantor to contract out of any notice period being required before enforcement of security.
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