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Under the Security Interests (Jersey) Law 2012 (the SIJL), registration is the preferred method of perfection, but is it the only one?

Registration is not the only method of perfection under the SIJL, but depending on the type of collateral being secured, it might be the only method available.

How to perfect a security interest under the SIJL

There are 4 methods of perfecting a security interest under the SIJL, and which one(s) to use depend on the type of collateral (the assets) that are being secured.

The general rule regarding perfection is a two step process:

1. The security interest has attached (“attached” has a special meaning under the SIJL); and
2. Any further steps required have been completed.

The further steps are outlined below.

Registration

The SIJL provides that a register of financing and financing change statements is kept by the registrar. The register is known as the Security Interests Register, or the SIR. 

Registration perfects a security interest in any type of collateral, except for investment securities held with an intermediary where the intermediary is the secured party. 

However, there is a subordinate piece of legislation (the Security Interests (Registration and Miscellaneous Provisions) (Jersey) Order 2013), which precludes the registration of security interests over the trust property of a trust, other than a prescribed unit trust. 

So, in conclusion, registration can be used to perfect security interests over all types of collateral, subject to the two exceptions above.

Possession

This is relevant to intangible assets that can be represented by a document (referred to in the SIJL as “documentary intangibles”). Most commonly, this would be shares (represented by share certificates) or units in a unit trust (represented by unit certificates). 

Having physical possession of the documentary intangible by the secured party (or on the secured party’s behalf) will perfect the security interest.

This is why the original share certificates will always be requested by counsel for the secured party.

Control

“Control” has a special meaning under the SIJL and is relevant to deposit accounts, securities accounts and certificated investment securities (i.e. shares or units). 

There are various requirements to be met for a secured party to be deemed to have “control” over the types of assets mentioned above, but in simple terms it generally involves the use of a notice and acknowledgement, or taking possession of the certificate(s) relating to the investment securities.

Attachment

There is one situation where none of the three above methods can be used, and it relates to trust assets as mentioned above. 

Contract rights (e.g. receivables under a loan) are only capable of perfection by registration. But if the grantor of the security is a trustee acting on behalf of a trust, such security interest is not capable of registration. 

Therefore, going back to our original two step process for perfection, there are no further steps to be completed and so the security interest is perfected when it has attached.

Perfection methods for different types of collateral

The table below shows the different methods of perfection that are available for different types of collateral:

The table above demonstrates that, with the exception of contract rights that aren’t trust assets, registration is not required to perfect security in Jersey. However, market practice would be to always register security if possible.

FAQs

What types of assets can be secured under the SIJL?

Only intangible movable assets are able to be secured under the SIJL. Therefore, land and buildings (as immovable assets) are excluded, as are tangible movable assets e.g. cars, stock etc.

Are there any other ways to take security over Jersey assets?

Yes. 

Immovable property has its own regime and is usually secured by way of a hypothec.

Tangible movable property is only capable of being secured by way of pledge (requiring physical possession of the asset by the secured party). It is therefore not very common, and is the reason why Jersey does not have debenture style agreements.

What is perfection and why is it important?

Perfection is the final step in taking security over assets and is important for both enforcement and priority.

A security interest which remains unperfected:

• Is void as against the Viscount or liquidator on the insolvency of the grantor.
• Ranks behind all perfected security interests.
• Allows a third party to acquire collateral free of any security (unless the third party was a party to the transaction which created the security interest).
• May not allow the security interest to be enforced against proceeds.

Does the perfection method impact on priority?

Yes.

The priority rules under the SIJL are complex, but, in certain circumstances, the method of perfection will effect the priority of the security interest as against other perfected, and unperfected, security interests. 

Are there any other steps needed to take security over Jersey assets under the SIJL?

Yes.

A valid security interest under the SIJL must be created by agreement.

To be enforceable against the grantor with respect to the collateral it must also “attach”.

Perfection is not a requirement, but is highly recommended!