Taking Security in Guernsey – What to Know

Given Guernsey’s role as a pre-eminent international finance centre and its proximity to the UK and mainland Europe, it is common to find Guernsey entities as part of a borrower group in cross-border secured financing transactions.

Guernsey is an independent legal jurisdiction and has its own laws for taking security in respect of Guernsey entities and their assets. The concept of a floating charge does not exist under Guernsey law and an English law debenture granted by a Guernsey company in respect of all its assets and undertaking is unlikely to be effective in respect of Guernsey assets, such as shares and bank accounts.

Lenders and their onshore counsel should consult local Guernsey counsel as early as possible in relation to a proposed financing transaction to discuss what Guernsey assets exist and how security can be taken in respect of those assets. These local law elements can then be reflected in the terms sheet and legal fee quotes.

How is security taken?

Where Guernsey security is required as part of a secured financing transaction this will typically require the preparation of a Guernsey law security interest agreement (SIA) which conforms with the requirements of the Security Interests (Guernsey) Law 1993, as amended (SIL). The SIL provides a simple and user-friendly regime for creating security interests in Guernsey assets.

There is no register of security interests in Guernsey (public or private), but specific registration regimes and procedures exist for security over Guernsey real property, ships, aircraft, and aircraft engines (for which specialist advice should be obtained).

To perfect a Guernsey security interest, the requirements of the SIL will need to be followed and completed. In certain instances, this will require notice of the security interest being validly served on the counterparty and other parties with an interest in the secured assets.

What types of security can be taken?

The SIL provides that a security interest may be created in the following types of Guernsey assets using the following methods:

• in securities (including shares in a Guernsey company), by the secured party having possession of the certificates of title to those securities;
• in a bank account where the account is held by the secured party (a charge-back), by the secured party bank having control of the account pursuant to an SIA; and
• in any other intangible moveable property such as third-party bank accounts, contract rights or receivables, by the secured party having title to the assets assigned to it pursuant to an SIA and notice of that assignment being given to the counterparty.

Key contents of an SIA

In order to comply with the requirements of the SIL, an SIA must:

• be in writing;
• be dated;
• identify and be signed by the grantor;
• identify the secured party;
• enable precise identification of the secured assets at any time;
• specify any events of default; and
• enable identification of the secured payment or performance obligations.

Priority of security interests

Under the SIL, priority among competing security interests in the same assets is determined by the order in time in which the security interests were created. Therefore it is important to recognise that creation and perfection occur simultaneously in respect of a Guernsey security interest, and requires the completion of a valid SIA and the necessary possession of certificates of title or acquisition of title by assignment (and therefore the giving of notice of assignment).

Security enforcement

The SIL and Guernsey law generally do not contain the concept of a receiver of assets. Rather, the SIL confers a power of sale or application upon a secured party following an event of default under an SIA and notice of the event of default being served on the grantor.

In exercising a power of sale or application, the secured party must take all reasonable steps to ensure that the sale or application is made:

• within a reasonable time; and
• for a price corresponding to the market value on the open market at the time of the sale of the secured assets being sold or, where there is no open market, the best price reasonably obtainable.

The proceeds of any sale or application must be applied in the following order of priority:

• in payment of the costs and expenses of the sale;
• in discharge of any prior security interest;
• to discharge the secured obligations under the SIA;
• to any secured parties with security interests created later in time; and
• any balance payable to the grantor.

How we can help

At SW Offshore our Banking and Finance specialists have several decades’ experience of providing local Guernsey law advice to both lenders and borrowers on complex and high-value cross-border secured financing transactions. We can advise across a full range of finance documents, prepare Guernsey SIAs, and assist with conditions precedents such as corporate authorisations, formalities certificates and legal opinions. We work closely with local borrowers and obligors to ensure deadlines are met. We pride ourselves on providing advice that is practical and keeps your transaction moving forward.

Please get in touch with us today if you would like to discuss our services or request a fee quote.