Enforcement of security under the Security Interests (Jersey) Law 1983
21 August 2020
Which statute applies?
When looking to enforce security over Jersey intangible movable property (such as shares, units and bank accounts), you need to check whether the 1983 Law or the Security Interests (Jersey) Law 2012 (the "2012 Law") applies.
The 2012 Law came fully into force on 2 January 2014 (the "New Law Date").
If the security interest was created before the New Law Date, the 1983 Law will apply. However, if the security interest was created on or after the New Law Date, then the 2012 Law will apply.
If you have a 2012 Law security interest, then please see our separate briefing which considers enforcement under the 2012 Law: Enforcement of security under the Security Interests (Jersey) Law 2012 (click here).
With the passage of time, the number of 1983 Law security interests is declining. The underlying loan transactions are simply being repaid or refinanced. However, if you are looking at the enforcement of a 1983 Law security interest, this briefing highlights the key matters to consider.
There is no concept of a receiver or an administrator in Jersey law, so a security interest is directly enforced by the secured party.
Power of sale
The enforcement remedy under the 1983 Law is to exercise a power of sale in relation to the collateral.
Notice of an event of default
A power of sale arises after an event of default occurs.
However, a power of sale cannot be exercised unless the secured party has served on the debtor a notice specifying the particular event of default complained of.
In addition, if the event of default is capable of remedy, the notice must also require the debtor to remedy the event of default and the power of sale can only be exercised if the debtor fails to remedy the event of default within 14 days after receiving the notice.
Unless the security agreement provides otherwise, the authority of the Jersey courts is needed before a secured party may exercise a power of sale.
However, it is normal for the security agreement to waive this requirement and therefore a 1983 Law security interest can usually be enforced without the authority of the courts.
Duties of a secured party
A secured party who exercises the power of sale must take all reasonable steps to ensure that the sale is made:
- within a reasonable time; and
- for a price corresponding to the value on the open market at the time of sale.
The 1983 Law therefore places emphasis on the secured party taking all reasonable steps to achieve a timely sale at a price reflecting the open market value of the collateral.
To assist evidentially, it may be sensible to obtain at least one independent valuation from an appropriately qualified and experienced valuer. This would provide independent evidence as to the open market value of the collateral.
Application of sale proceeds
Once a secured party has sold the collateral, the proceeds of sale must be applied in accordance with the 1983 Law.
Assuming there are no other security interests, the secured party would deduct the costs and expenses of the sale; discharge the secured obligations; and account to the debtor (or other relevant person) for any balance.
Moneys derived from collateral which consists of moneys held in a bank account are treated as if they were proceeds of sale. Therefore, it is not necessary to actually sell such collateral and the moneys obtained from the secured bank account can be applied in the same way as if they were sale proceeds.
Secured party's powers and bankruptcy
A key Jersey bankruptcy procedure is désastre. In this situation, a court order transfers the property of the bankrupt debtor to the Viscount (the executive officer of the Jersey courts) who administers the désastre.
The effect of a désastre on a 1983 Law security interest depends on whether the secured party has title to the collateral.
If the secured party has title to the collateral (because the security interest was created by title being transferred to the secured party), the collateral would not vest in the Viscount and the secured party may exercise the power of sale despite the désastre.
However, if the debtor retained title to the collateral (because the security interest was created other than by transferring title to the secured party), then the collateral would vest in the Viscount subject to the security interest. In this situation, the Viscount may realise the collateral (accounting to the secured party for the net proceeds of realisation).