The Security Interests (Jersey) Law 2012 came fully into force on January 2 2014. The law changes the way in which security is created over Jersey intangible movables. This update is the fourth in a series(1) relating to the new law and deals with the transitional provisions that apply to pre-existing security created under the Security Interests (Jersey) Law 1983.
Under the transitional provisions, a security interest under the 1983 law that was still in effect when the new law came into force will continue to be effective under the 1983 law, rather than the new law. Further, the continuing security interest will have priority over any security interest under the new law in the same collateral unless otherwise agreed between the secured parties. This ensures the continued grandfathering of security interests created under the 1983 law.
However, if new collateral is added to a continuing security interest under the 1983 law, it may become a security interest subject to the new law. This will be the case if:
- parties that entered into a security agreement that created a continuing security interest subsequently enter into another agreement which purports to extend the continuing security interest to new collateral; and
- the agreement that created the continuing security interest did not envisage the new collateral as forming part of the original collateral.
An amendment of the underlying secured obligations, as opposed to the collateral, does not give rise to a continuing security interest becoming subject to the new law. However, care should be taken if the amendment is so fundamental that it changes the nature of the secured obligations, as there may be an argument that entirely new security has been created such that it would be necessary to repaper the security under a new law security agreement. Where the secured obligations are all moneys that are from time to time owed by the grantor to the secured party, this is not a concern.
If it is proposed that collateral be amended, it is necessary to consider which law will apply to the security interest. If the new law applies by virtue of the transitional provisions, the contractual provisions of the relevant security agreement should be reviewed to check for compliance with the new law. In particular, the agreement should be checked to ensure that it:
- provides for valid attachment and perfection in a manner consistent with 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 the full range of enforcement powers and ancillary actions permitted under the new law.
It may be that a secured party with a continuing security interest under the 1983 law wishes to convert such security interest voluntarily to a new law security interest, to take advantage of the more flexible enforcement provisions. The power to do this may depend on the drafting of the further assurance clause in the original security agreement. Further, the grantor may be unwilling to meet the cost of this, arguing that valid security already exists.
The transitional provisions allow the parties to a continuing security interest to agree that, in their relations with each other, the new law (and not the 1983 law) will apply to a continuing security interest. This effectively means that, as a contractual matter between the grantor and the secured party, the new law may apply. However, third parties and insolvency officials may not be bound by such agreement. The better alternative is to enter into a new law security agreement in addition to the 1983 law security agreement.
For further information on this topic please contact Matthew Swan at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email (email@example.com). The Ogier website can be accessed at www.ogier.com.
(1) For further details please see "The Security Interests (Jersey) Law 2012 – enforcement", "The Security Interests (Jersey) Law 2012 – taking collateral free of security" and "The Security Interests (Jersey) Law 2012 – priority".