The Security Interests (Jersey) Law 1983 (the 1983 Law) will soon be replaced by the Security Interests (Jersey) Law 2012 (the New Law), which was passed by the States of Jersey on 19 July 2011. The New Law is expected to come into force in early 2013.
In our related briefing Advantages of the New Security Interests (Jersey) Law, the concept of registration which is to be introduced by the New Law is highlighted as a potential advantage to lenders. Registration is one of the various enhancements which will contribute to the modernisation of Jersey's intangible movable security regime.
There is currently no public registration of security interests created under the 1983 Law, either centrally or at the registered office of a Jersey company.
The New Law will introduce a centrally maintained register in Jersey, accessible to the public.
Under the New Law, registration can perfect a security interest in any type of collateral. Registering a financing statement will record a security interest on the register.
Registration will be critical for collateral where the security interest cannot be perfected by possession or control (for eg. a security interest over contractual rights, or all present and future intangible movable property).
If a security interest under the New Law is not perfected and a grantor of security is put into receivership, liquidation or any similar insolvency process, other secured creditors' claims may have priority.
While registering a financing statement will not always guarantee that a secured party will recover what is owed, it increases the secured party's chances and may put a secured party in a better position than secured creditors who have not registered.
When to register
Even where the security interest is perfected by possession or control, we expect that lenders will usually also perfect their security by registration for the following main reasons:
- where security has been taken over certificated securities by control by possession of the certificates of title, to guard against loss of those certificates;
- to ensure continuous perfection of security over proceeds of collateral (if the collateral is transferred or otherwise dealt with); and
- to put the world on notice of the security from a commercial perspective (even though this will not be constructive notice from a legal perspective). This is particularly relevant where a junior ranking secured creditor seeks to enforce, as notice of such enforcement must then be served on the senior secured creditor.
We expect that market practice will be to register all security interests where it is possible to do so (in addition to perfecting by possession or control of collateral), except where there are confidentiality concerns as explained below.
When not to register
Registration may be undesirable in certain circumstances, for example where there are confidentiality concerns for certain grantors. The name of the grantor will appear on the register and be publicly available. Grantors who are individuals may resist this, where the collateral is solely bank accounts or securities accounts, without the need to register. Please note that where the grantor is a trustee, the name of the trust is not required to be registered.
Existing security: continuing security interests created under the 1983 Law are not required to be registered, although there is no mechanic to prevent such registration . If collateral secured pursuant to security agreements under the 1983 Law is amended after the New Law comes into force, the New Law will apply and there may be a need to register a financing statement.
Possession/control: it will not be necessary to register security interests created under the New Law which are perfected by possession or control of the collateral, although it may still be desirable to register in these circumstances for the reasons explained above.
Foreign security: it is not necessary to register in Jersey any security created under foreign law (ie. security not created under the New Law).
It will be possible for a prospective secured party to pre-register its security interest before a security agreement has been entered into. However, we expect that pre-registration would generally require grantor consent for confidentiality reasons.
The register will be an automated online public register.
The registrar of companies under the Companies (Jersey) Law 1991 will be the registrar for the purposes of the New Law and will maintain the Jersey security interests register.
The register will permit:
- registration of financing statements and financing change statements in respect of security interests; and
- downloading and printing search results/reports from the register.
This use of the register will require the payment of fees which are to be published by the Jersey Financial Services Commission. Basic searching is expected to be free of charge.
A financing statement contains information about a security interest created under the New Law (see further below).
It will not be necessary or possible for a security agreement or other finance documents to be registered. A financing statement will also not require financial information pertaining to the security to be disclosed. Third parties seeking information not on the register would need to contact a party to the security agreement for more information.
The contents of financing statements and financing change statements will be prescribed in an Order and guidance notes to be issued by the registrar. We expect that financing statements will need to include basic details of the grantor, secured party, collateral and duration for the registration. A financing statement will also contain a statement that a secured party or an intending secured party either has acquired or intends to acquire a security interest in identifiable or described collateral.
Financing change statements will need to include any change to the information provided in the original financing statement, for example if the original registration is subject to renewal or discharge.
A financing statement or financing change statement is taken to be registered at the time when a registration number, date and time are assigned and the statement is stored and capable of being searched (after which the registrar will issue a verification statement). The date and time stamp may prove to be an important factor where there are competing security interests in the same collateral. A printed search report issued by the registrar will be admissible as evidence and will be (in the absence of evidence to the contrary) proof of the registration.
The validity of the registration of a financing statement or financing change statement will only be affected by a defect, irregularity, omission or error which is 'seriously misleading'. This is an objective test as for registration details to be seriously misleading; it is not necessary to prove that any person has actually been misled.
We expect that the Order described above will include further provisions on what registration details will be seriously misleading. In particular, secured parties should be careful to register the name of the grantor accurately (eg according to an official record, such as a passport or certificate of incorporation).
Assignments, transfers and subordinations
Assignments of trade receivables owing by Jersey companies or individuals, whether by way of security or absolute assignments, will also fall within the registration system, as will transfers of security interests and further assignments of receivables.
Subordination or intercreditor arrangements may also be registered so that a transferee of a subordinated security interest will be bound by the subordination.
Other aspects of registration
Single registration: it is not necessary to make a separate registration for each transaction. A single financing statement can cover all transactions, present and future, relating to a given description of collateral.
Searches: the register will be publicly searchable and printed search reports setting out information in the register will be available upon payment of a fee.
Duration: registration will be effective for a default period of 10 years beginning on the date of registration, or more commonly for any duration specified in the financing statement or financing change statement (unless the registration is renewed or discharged).
Renewal: registration may be renewed by registering a financing change statement at any time while the earlier registration is effective.
What will a secured lender need to do?
Registration of a financing statement regarding a security interest (intended or perfected) can enhance and protect a lender's position where certain collateral is to be secured under the New Law.
Upon the New Law coming into force, it is important for lenders to ensure that:
- the register is searched appropriately
- correct documents are used; and
- necessary registrations are made at the appropriate times.