"There is no concept of a receiver or an administrator in Jersey law, so a security interest is directly enforced by the secured party, who therefore has control of the process."
"Once a secured party has sold or appropriated collateral, it can deduct costs and expenses, and use the balance to repay amounts owed. If there is any surplus after a sale or appropriation by the secured party, the secured party must pay that out in line with a statutory waterfall."

Enforcement of security under the Security Interests (Jersey) Law 2012

07 Oct 2019

Jersey law security over Jersey intangible movable property such as shares, units and bank accounts is taken by way of a security interest under the Security Interests (Jersey) Law 2012 (the "Law").

This briefing summarises the process for enforcing security interests under the Law.

Direct enforcement
There is no concept of a receiver or an administrator in Jersey law, so a security interest is directly enforced by the secured party, who therefore has control of the process.

Notice of an event of default
An event of default must have occurred before a security interest can be enforced. Notice of the event of default must be served on the grantor of the security, and the notice must specify the event of default giving rise to enforcement. Notice can be served immediately after an event of default has occurred.

Power of enforcement
A secured party may exercise its power of enforcement under a security interest in a number of ways:

  • by appropriating the collateral or proceeds (that is, the secured party takes ownership of the collateral or proceeds);
  • by selling the collateral or proceeds;
  • by taking any of the following ancillary actions:
    • taking control or possession of the collateral or proceeds;
    • exercising any rights of the grantor of the security interest in relation to the collateral or proceeds;
    • instructing any person who has an obligation in relation to the collateral or proceeds to carry out the obligation for the benefit of the secured party; or
    • applying any remedy that the security agreement provides for as a remedy that is exercisable pursuant to the power of enforcement that does not conflict with the Law.

Sale and appropriation are primary enforcement remedies, but the ancillary actions can be helpful. In the case of shares, for example, they would allow a secured party to exercise voting rights.

Notice of sale or appropriation
Before a secured party can sell or appropriate collateral, it must give written notice to certain parties. The notice needs to be given at least 14 days beforehand. Notice is given to the following:

  • the grantor of the security interest, unless it has waived its right to receive notice;
  • any person who, 21 days before the appropriation or sale, has a registered security interest in the collateral; and
  • any other person who has an interest in the collateral and has, at least 21 days before the appropriation or sale, given the secured party notice of that interest.

The secured party does not need to identify interested parties. The onus is on the interested parties to make themselves known to the secured party.

The parties to a security agreement may "contract out" of the above notice provisions. Most Jersey security agreements are drawn up this way.

No later than 14 days after the sale or appropriation, the secured party has to give the grantor and any other party identified above a statement of account. The statement must show the following:

  • the gross value realised by the appropriation or sale;
  • the secured party's reasonable costs relating to the appropriation or sale;
  • other reasonable enforcement expenses; and
  • the net value of the collateral and any surplus after payment of the secured liabilities owing to the secured party.

Duties of a secured party
A secured party who appropriates or sells collateral owes a duty to:

  • take all commercially reasonable steps to determine or obtain the fair market value of the collateral as at the time of the appropriation or sale;
  • act in other respects in a commercially reasonable manner; and
  • enter into any agreement for sale only on commercially reasonable terms.

There is no formal guidance as to what taking "all commercially reasonable steps" means. It seems sensible to obtain at least one independent valuation from an appropriately qualified and experienced third party. This would provide independent evidence as to the fair market value.

If there is a risk of a breach of the duty to obtain a fair price on a sale there is a chance that it might give rise to a claim for compensation. In this situation, a secured party that is acting as a security trustee could ask the Court to bless its decision to realise collateral[1].

Once a secured party has sold or appropriated collateral, it can deduct costs and expenses, and use the balance to repay amounts owed. If there is any surplus after a sale or appropriation by the secured party, the secured party must pay that out in line with a statutory waterfall. As an alternative, the secured party may discharge this duty by paying any surplus into court.

Secured party's powers are not affected by bankruptcy
If the grantor is declared bankrupt, or if proceedings that lead to bankruptcy are commenced, this does not prevent a secured party from exercising its powers of enforcement, as discussed above.

 

[1] In the matter of Bayswater Road (Holdings) Limited [2019] JRC 102

By signing up to receive emails, you are providing us with your personal data. In future, when you receive such emails you will have the option to unsubscribe. For important information about how we will process personal data, please read our website privacy notice, a copy of which is available here.