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LAW


Law reform on the way


Changes to the law governing security over intangible property will hopefully lead to improved processes, as Bedell’s Mark Dunlop explains


of Jersey expecting to pass the new Security Interests (Jersey) Law 201- by the end of this year, it is expected to come into force in the latter half of 2011, and will be relevant to banks and all customers who borrow on a secured basis.


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In simple terms, intangible property is property which has no physical form, such as shares in a company, units in a unit trust, bank accounts or rights under a contract. Under the 1983 Law, lawyers focus on the manner in which security is created – by having possession of the certificates of title to shares, by having control of a bank account or by taking an assignment of title in and to the collateral. Under the new Law, a security interest is simply a generic term. Therefore, going forward, security agreements will simply provide that a security interest is created and it will no longer be necessary to consider different methods of security creation.


Along with simplifying the meaning of a security interest, the key features of the new Law are as follows: n It will be possible to take security over all of a company’s present and future Jersey intangible property n It will be possible to take third-party security n The validity of security will not be affected by the grantor being able to deal with the collateral n The Law introduces the concept of perfection and provides for a system of security registration n The Law enhances the enforcement powers of a secured party.


36 businesslife.je December 2010/January 2011


ROPOSALS to reform the Security Interests (Jersey) Law 1983 will make a significant difference to the way security may be taken over intangible property. And the changes will take place very soon. With the States


Future property Under the 1983 Law, the collateral has to be clearly identified and it is arguably not possible to take security over future property. This can hamper the drafting of security agreements. Under the new Law, a security agreement may create security in after-acquired property (being intangible property that is acquired after the security agreement is entered into). Also, the Law makes it clear that a security agreement may describe collateral in wide terms. Therefore, under the new regime, it will be possible to take security over all of the grantor’s present and future Jersey intangible property.


Third-party security There is a view that under the 1983 Law, a security agreement must secure the obligations of the grantor of the security, which can include the grantor’s obligations under a guarantee. Thus, when taking security from a person who is not a borrower, it is common to take a guarantee from the grantor in respect of the borrower’s indebtedness, and for the security to secure that guarantee obligation. Under the new regime, the Law confirms that a security interest may simply secure the obligations of a third party. Consequently, the need to obtain this kind of guarantee can be dispensed with under the new regime.


Right to deal


If a grantor creates security but retains the right to deal with the collateral, there are technical concerns under the 1983 Law that the security may not be effective. The new Law helpfully confirms that the attachment of a security interest is not affected by the grantor retaining the right to deal with the collateral. For example, a security agreement over a bank account may provide


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