The draft Security Interests (Jersey) Law 201- (the “new Law”) is in close-to-final form and is shortly due to commence its journey through the legislative process. It is currently anticipated that the new Law will come into force in the first half of 2011.
This briefing note is one of a series relating to the new Law and deals with the transitional provisions that will apply to pre-existing security once the new Law comes into force.
Under the new Law, a security interest which was created under the Security Interests (Jersey) Law 1983 (the “previous Law”), and which is still in effect when the new Law comes into force will continue to be effective, and will be subject to the previous Law, rather than the new Law. Further, the existing security interest will have priority over any new security interest in the same collateral created under the new Law unless otherwise agreed between the security interest holders.
However, if a continuing security interest under the previous Law is “amended”, it will become a security interest subject to the new Law.
The definition of “amend” includes to:
- alter the security interest to cover a new secured obligation (in other words, one that was not previously secured under the security interest agreement pursuant to the previous Law);
- alter the terms on which obligations are secured;
- extend or reduce the duration of the security interest;
- add to or modify the collateral to which the security interest relates.
Ideally, any “amendment” of a security interest will be made in conjunction with a careful review of the contractual provisions of the relevant security agreement to check compliance with the new Law. In particular, the agreement should be checked to see that it:
- provides for valid attachment and perfection (e.g. by public registration under the new Law);
- includes waivers under the new Law for such things as the obligation to give the grantor 14 days’ notice of an appropriation or sale, or to provide a grantor with copies of any verification statement following a registration; and
- allows a full range of enforcement powers and ancillary actions which are permitted under the new Law.
On an “amendment”, if the continuing security interest was created by possession or control in a manner also sufficient to perfect security under the new Law, it will be taken to have been created at the time of the amendment. Otherwise, additional steps, such as public registration, may need to be taken to ensure perfection of security.
If an “amendment” of an existing security interest takes place without consideration of the new Law, there could be a potential mismatch between the terms of the agreement and the applicable statute, detrimentally affecting the position of the secured party.