Updated: 22 June 2017
This note deals with security interests over “intangible movables” which are in Jersey. These are assets which cannot be touched and have no physical substance. The best examples of intangible movables are bank accounts, shares in a company or rights in a contract or agreement. There are certain intangible movables which, under Jersey law, cannot be secured; please take legal advice if you need further guidance.
This note does not deal with:
· Tangible movables (such as cars, washing machines, TVs etc). At the moment, it is not easy to take a security interest over tangible movables, so, where finance houses lend to a borrower to buy tangible movables, they will often try to retain some control over the tangible movables in other ways. There are current proposals to introduce statute to cover security interests over tangible movables.
· mortgages over houses or other real property (“immovables”).
When a lender (usually a bank or building society) lends money to a borrower, it may require that security is given by the borrower over certain property that he or she owns.
The lender and the borrower will sign a security agreement setting out the terms of the security interest. The security agreement will include certain definitions:
· “Grantor”: the person who is granting the security interest i.e. the borrower.
· “Secured party”: the person who is getting the benefit of the security interest i.e. the lender.
· “Collateral”: the property of the grantor in which the security interest is being taken. This will normally be limited to a specific asset, although it is possible for the security agreement to create general security over all of the intangible movables of the grantor, even if acquired later.
· “Event of default”: an event that gives the secured party the right to enforce the security interest i.e. sell the collateral or take it for itself. The most frequent event of default is a failure to repay the loan or pay interest on the loan, although the security agreement may include others.
If an event of default occurs, the secured party can enforce its security by either:
· selling the collateral; or
· taking the collateral for itself.
When the secured party enforces the security interest by selling the collateral, it will deduct the reasonable costs of the sale and then use the remaining proceeds of sale to pay off the loan and any other monies owing (such as unpaid interest). If there is any money left over, this may get repaid to the borrower. If the proceeds of sale are not enough to repay all outstanding amounts, nothing is repaid to the grantor and any unpaid amounts remain owing to the lender. The process is similar when the secured party enforces by taking the collateral. When the secured party enforces, it is under a duty to act in a commercially reasonable way.
During the time that the loan has not yet been repaid and the security interest is in effect, the security agreement may restrict what the grantor can do with the collateral, even though it still belongs to the grantor.
It is possible that the secured party may want to register the security interest. The registration is made on the Security Interests Register; the website is at https://sir.jerseyfsc.org/Pages/Submissions.aspx This register is available to the public, and would show the name and address of the grantor. This means that other people could find out about the existence of the security interest.