Real Estate Structures in Distress - Offshore Security Considerations

Although the real estate finance market has so far seen a continuation of the theme of forbearance and support, that attitude will not last indefinitely - further defaults and insolvencies are likely to come and we expect financiers to increasingly exercise their rights under security agreements to drive restructuring or refinancing, or, in more extreme cases, to start to actively pursue enforcement or “loan to own” strategies. This piece from partners in our Jersey, Guernsey and London offices explores the offshore issues and options under the laws of Jersey, Guernsey and BVI.

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What we are seeing in the Real Estate Finance market is in the large part a continuation of the theme of forbearance and support. Where sponsors are willing to pro-actively engage, their financiers are taking a broader and more long-term view in light of prevailing market conditions.

There are high profile restructurings taking place, but predominantly in the retail sector – we have acted in the restructurings of high street clothing retailer, New Look and the world’s largest foreign exchange bureau Travelex, along with a number of active matters in the office space, shopping centre and hotel sectors – but they remain the exception rather than the rule. In many cases, again by reference largely to real estate holding structures where offshore entities are most common place, financiers are taking advice on pre-enforcement steps, including enforcing offshore security as a genuine alternative to enforcing property security, but typically more with a view to understanding the options and processes than to any imminent action.

But the clock is ticking and this attitude, like the UK government support which underpins it, cannot prevail indefinitely.

Further defaults and insolvencies are likely to follow and we expect financiers to increasingly exercise their rights under security agreements to drive restructuring or refinancing, or, in more extreme cases, to start to actively pursue enforcement or “loan to own” strategies.

We are regularly advising clients on both borrower and lender sides of the steps that they should be taking now, and the questions they might be asking, to protect their respective interests.

Some of the key enforcement issues and considerations across the jurisdictions we cover which are most commonly used in real estate structuring:

Jersey or Guernsey Law Security

  • Where are the original share certificates and signed undated share transfer forms? These should be in the control of the secured party and will need to be sent to the administrators of the company whose shares are secured to effect an enforcement together with KYC on the proposed new owner.
  • Is the security agent willing / able to conduct the enforcement? The enforcement process is conducted by the secured party, without the option to appoint a receiver.
  • Impact of bankruptcy of the grantor of the security? Creditor friendly security law, there is no moratorium on enforcement of a perfected security interest.
  • Consider enforcement options - if dealing with share security it might be more appropriate to exercise voting rights under the security agreement with respect to the company whose shares are secured (for example to appoint or remove directors) rather than to seek to effect a sale or appropriation of the secured shares.

BVI Law Security 

  • Receivership is the predominant enforcement tool in respect of BVI law security.
  • Appointing a receiver is an out of court process, it is low cost and can be effected in short order.
  • There is no moratorium available in BVI to limit the enforcement of a secured creditor’s rights.
Walkers’ teams of Banking & Finance and Insolvency & Dispute Resolution specialists have extensive experience of advising in respect of distressed real estate investment structures. Working in conjunction with financial institutions, corporations and other market participants, we regularly represent all categories of stakeholders, including debtors, directors, creditors (including senior and mezzanine creditors and bondholders), shareholders and investors (such as pension companies, hedge funds and private equity houses), on a broad range of matters from security reviews and enforcement planning through to complex cross-border refinancings and restructurings.

GUERNSEY
Zoë HallamGroup Partner*T +44 (0)1481 748 920zoe.hallam@walkersglobal.com
Kim PaivaGroup Partner*T +44 (0)1481 748 906kim.paiva@walkersglobal.com

JERSEY
Jon Le RossignolGroup Partner*T +44 (0) 1534 700 716jon.lerossignol@walkersglobal.com
Tristan MaultbySenior CounselT +44 (0) 1534 700 754tristan.maultby@walkersglobal.com

LONDON
John O'DriscollPartnerT +44 (0)20 7220 4987john.o'driscoll@walkersglobal.com
Andrew ChissickSenior CounselT +44 (0)20 7220 4994 andrew.chissick@walkersglobal.com