Enforcing Security in Jersey – Case Law Update

Lenders are increasingly seeking advice on the practicalities of enforcing their Jersey security packages either at the outset of transactions, at pre-enforcement stage or with a view to enforcement. Unlike in England and Wales, Jersey does not have a concept of an administrator or receiver to be appointed to assist with enforcement and so any enforcement steps are taken directly by the secured party.

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Thankfully, Jersey has a creditor friendly security law in the Security Interests (Jersey) Law 2012 (“SIL”), but there remain certain duties which must be complied with when appropriating or selling any collateral pursuant to enforcement action:

  • to take all commercially reasonable steps to determine (in the case of appropriation) or obtain (in the case of sale) the fair market value of the secured collateral, at the time of the appropriation or sale;
  • to act in other respects in a commercially reasonable manner in relation to the appropriation or sale; and
  • in the case of a sale, to enter into any agreement for or in relation to the sale only on commercially reasonable terms.

There is limited case law guidance in Jersey regarding the scope of these duties, however the decisions available have provided some helpful guidance and tools for secured parties.

Security Trustees

Where a secured party is acting as a security trustee (and notwithstanding that the governing law of the trust is other than Jersey), the secured party may approach the Jersey court to bless the decision of a sale or appropriation upon enforcement, under the Trusts (Jersey) law 1984. The court in Solutus Advisors Limited v Aurium Real Estate London Ultra Prima Limited (“Solutus”) reaffirmed this position but reiterated that the court must be satisfied that such blessing is to be provided for the protection of the security trustee only, as trustee, not the secured creditors.

Secured parties are advised to seek Jersey law advice as to compliance with their duties under SIL and, if acting as a security trustee, the potential availability and suitability of the Royal Court’s blessing.

An application to the Royal Court will require, amongst other things, the submission of properly evidenced valuation reports and all actions taken by the security trustee in compliance with its duties under SIL. Where such court protection is not available to a secured party acting in its own capacity, properly documenting decisions would assist in mitigating the risk of failure to comply with the duties imposed under SIL.

Valuation and sale considerations

A secured party will need to evidence the steps it has taken, as applicable, to value and sell the secured collateral. The evidence of value will need to be objectively justified. Secured parties are advised to instruct independent professional valuation firms to determine the fair market value of collateral, particularly shares. The valuation of companies is fraught with different methodologies, models and assumptions, as seen in the case of Kidd & Ors v All Services Group Holdings and Ors, in which the fair market value of a holding company varied by almost half depending on the valuation methodology used and assumptions applied.

Valuers should clearly explain the rationale for the methodologies and the assumptions applied, and the alternatives considered, for reasonably probable scenarios. Where prior valuations are available from pre and post funding stages, valuers at enforcement stage are recommended to address any material deviations from such prior reports. This careful consideration would be particularly relevant where the enforcement valuation varies significantly from a pre-funding valuation or where the collateral cannot discharge the secured obligations in full. Fair market value is determined according to the market as it exists at the time of enforcement. Hence, the court in Solutus did not require a secured party to wait until a better offer arose in a limited property market.

In a sale, it is advisable to conduct public sales via an auction process and to retain evidence of offers received. Where a private sale is made to an associated entity of the secured party, care should be taken to document that such connection did not negatively influence the valuation of the collateral or unduly benefit the associated entity under the terms of any sale agreement. Accordingly, terms of sale agreements should be arm’s length, absent good reason otherwise.

The secured party may also engage with the security provider to provide necessary and reasonable documentation and information in order to discharge its duty to act in a commercially reasonable manner, in combination with taking the steps outlined above.

 

For more information on the process of enforcing Jersey security and pracitical pre-enforcement steps in connection therewith please refer to 'Legal Guide to Pre-Enforcement Steps Under Jersey and Guernsey Law' and 'Enforcement of Share Security in Jersey and Guernsey – Five Key Considerations.'


JERSEY
Marc SeddonPartnerT +44 (0)1534 700 761marc.seddon@walkersglobal.com
Julia KeppeGroup Partner*T +44 (0) 1534 700 728julia.keppe@walkersglobal.com
Jon Le RossignolGroup Partner*T +44 (0) 1534 700 716jon.lerossignol@walkersglobal.com
Tristan MaultbyGroup Partner*T +44 (0) 1534 700 754tristan.maultby@walkersglobal.com
James TurnbullSenior CounselT +44 (0)1534 700 776james.turnbull@walkersglobal.com
Lisa EllefsenAssociateT +44 (0) 1534 700 865lisa.ellefsen@walkersglobal.com