Knowledge

Against a backdrop of continuing economic and geopolitical uncertainty, secured creditors are increasingly focused on understanding their enforcement options before a borrower distress scenario becomes urgent. In that context, creditors are reviewing enforcement options earlier so that they have a contingency plan if consensual workouts with borrowers are unsuccessful.

As holding structures in Guernsey continue to be a popular choice for investment into the UK, any enforcement plans being considered against such structures by secured creditors should be reviewed from a Guernsey law perspective to ensure that any Guernsey security is enforced efficiently.

Any enforcement steps in relation to Guernsey security must be taken in accordance with the underlying security interest agreements (the "SIAs") and the Security Interests (Guernsey) Law, 1993, so obtaining Guernsey law advice early is crucial.

Where Guernsey holding structures are used, we typically see Guernsey security being granted over the shares, units and or partnership interests of the Guernsey entities. Guernsey security can also be granted over other Guernsey situs assets such as contract rights (for example, rights under an intercompany loan where the Guernsey entity is the borrower) and bank accounts held at a bank in Guernsey.

When considering a potential enforcement, to ensure any such enforcement proceeds smoothly, a secured creditor should consider the following steps:

• obtaining copies of the fully executed SIAs;
• ensuring that the security interests created under the SIAs were perfected (including ensuring that all notices and acknowledgements under the SIAs were delivered);
• having the SIAs and the related notice and acknowledgements reviewed by Guernsey counsel to identify and address any issues which may impact enforcement;
• in respect of any account security where the accounts are held at a third-party bank, ensuring that any signatory lists of the secured creditor provided to such bank remain up to date;
• checking if the transfer of shares (or equivalent) would require any regulatory consent (such as the consent of the Guernsey Financial Services Commission);
• collating any necessary client due diligence information in respect of the prospective transferees and any potential new directors for the Guernsey company;
• identifying a replacement corporate services provider in Guernsey in the event that the existing corporate services provider intends to resign post-enforcement;
• if necessary, obtaining a valuation to ensure that the open market value of the property or best price available is obtained; and
• preparing a steps plan to co-ordinate the various timings of each enforcement step.

The steps set out above are intended as a practical starting point. Ultimately, the appropriate steps will depend on the terms of the relevant SIA, the nature of the secured assets and the wider transaction structure.

Bedell Cristin has significant practical experience on enforcement and can assist with swift and effective enforcement. If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.