Legal Guide to Taking Security in Guernsey

• Under the Security Interests Law there is no regime for public registration of security interests
  
  
• Enforcement of a security interest is a self-help remedy carried out by the secured party itself
  
  
• Guernsey law does not recognise the concept of charges and, in particular, floating charges

Often we are asked what security should be taken in respect of Guernsey entities (and their assets) in the borrower group, how that security is taken and what registration and perfection steps are required. Guernsey has a simple and user-friendly system of creating security interests in Guernsey situs intangible moveable property pursuant to the Security Interests (Guernsey) Law, 1993 (as amended) (the “Security interests Law”). Separate regimes (including registration procedures) exist for security over Guernsey realty, ships, aircraft and aircraft engines and specialist advice should be sort in relation to these types of assets. This Legal Guide focuses on the most common types of Guernsey security that we see in the secured financing market and provides a high level overview of the process for taking and perfecting that security.

It is worth noting at the outset that Guernsey law does not recognise the concept of charges and, in particular, floating charges. Therefore there is no concept of a debenture being granted by a Guernsey entity over all of its assets and undertaking. Rather, under the Security Interests Law, a specific and separate security interest will need to be taken over each Guernsey situs asset and, if general security akin to a debenture is required, then a security interest over the securities of the entity itself is generally taken. Of course, there is no issue with a Guernsey entity entering into an English law debenture or other foreign law security agreement in respect of overseas assets which it owns. Therefore a careful analysis of what material assets the entity owns and where they are located is the key first step to designing an effective security package for a lender.

In relation to Guernsey situs assets, the Security Interests Law provides for the following means of creating a security interest over the following types of collateral:

• Shares in a Guernsey company or units in a Guernsey unit trust: by taking possession of the share or unit certificates and/or by assigning title thereto and giving written notice of that assignment to the company/trustee;
  
  
• Receivables and other contract rights (including limited partnership capital call rights): by assigning title to those rights and giving written notice of that assignment to the counterparty;
  
  
• Third-party bank accounts: by assigning title to the account and giving written notice of that assignment to the account bank; and
  
  
• Bank accounts with the secured party lender itself (charge-back): by the secured party having control of the account pursuant to a security interest agreement.

In each case, the security interest must be created pursuant to a security agreement which:

• Is in writing;
  
  
• Is dated;
  
  
• Identifies and is signed by the grantor;
  
  
• Identifies the secured party;
  
  
• Contains provisions regarding the collateral sufficient to enable its precise identification at any time;
  
  
• Specifies the events of default; and
  
  
• Contains provisions regarding the payment of performance obligation being secured sufficient to enable it to be identified.

Under the Security Interests Law there is no regime for public registration of security interests, nor are Guernsey companies required to maintain a register of security interests or similar. Under the Security Interests Law, priority among competing security interests in the same collateral is determined by the time order in which the security interests are created.

Finally, there is no equivalent role of a receiver of assets under the Security Interests Law or Guernsey law generally. Enforcement of a security interest is a self-help remedy carried out by the secured party itself. For further information on the enforcement of Guernsey security interests please refer to our note on Enforcement of Guernsey Security.