Jersey: Lending & Secured Finance

The In-House Lawyer Logo

This country-specific Q&A provides an overview to lending and secured finance laws and regulations that may occur in Jersey.

This Q&A is part of the global guide to Lending & Secured Finance. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/lending-and-secured-finance/

  1. Do foreign lenders require a licence/regulatory approval to lend into your jurisdiction or take the benefit of security over assets located in your jurisdiction?

    Foreign lenders which do not lend from within Jersey are not required to be licensed, qualified or otherwise entitled to carry on business in Jersey to be able to lend money or take the benefit of security over assets located in Jersey.

    There is no need to obtain regulatory approval to take or enforce security over Jersey assets unless security is taken over shares in a regulated entity, in which case the prior approval of the Jersey Financial Services Commission would be required.

    A person carrying on a financial services business in or from within Jersey, and a Jersey body corporate or other legal person registered in Jersey carrying on a financial services business anywhere in the world is required to register as a specified Schedule 2 business, under the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008.

    Under the Proceeds of Crime (Jersey) Law 1999, lending money to third parties constitutes carrying on financial services business. Consequently, a foreign lender operating in, or from within Jersey, and a Jersey company or other legal person registered in Jersey which lends money anywhere in the world, is required to register as a specified Schedule 2 business under the Proceeds of Crime (Supervisory Bodies) Jersey Law 2008.

  2. Are there any laws or regulations limiting the amount of interest that can be charged by lenders?

    There is no statutory cap on the level of interest which may be charged in Jersey. The Jersey courts however retain a discretion to reduce the charging of contractual interest to a rate which is moderate or reasonable on public policy grounds.

    In addition, as noted in question 24 below, if a borrower were to become insolvent, it is possible that a loan agreement could be set aside, or the interest payable reduced, if the transaction were held to be an extortionate credit transaction.

  3. Are there any laws or regulations relating to the disbursement of foreign currency loan proceeds into, or the repayment of principal, interest or fees in foreign currency from, your jurisdiction?

    There is no exchange control legislation or regulation in Jersey.

  4. Can security be taken over the following types of asset: i. real property (land), plant and machinery; ii. equipment; iii. inventory; iv. receivables; and v. shares in companies incorporated in your jurisdiction. If so, what is the procedure – and can such security be created under a foreign law governed document?

    Land. Security over Jersey immovable property (land but also leases of a term exceeding 9 years where the landlord consents to the lease being hypothecated and ‘flying freehold’) will be created pursuant to a hypothec. A hypothec is a supporting right available to secure a debt where title of the real estate remains with the debtor. The hypothecary creditor enjoys rights in priority to the other creditors of that debtor in respect of that real estate which has been hypothecated. There are various forms of hypothec but a lender will invariably seek to register a judicial hypothec at the Public Registry in Jersey.

    It is not possible to hypothecate the interest of a joint owner (although an owner in common can secure their individual share).

    The hypothec must relate to a particular liability and the ‘billet’ or acknowledgment will refer to that liability. The hypothec must be created for a specific sum and stamp duty is payable on registration.

    Some real property in Jersey that are split into flats with different ownership is owned by property holding companies. Security over the individual flats will be created by taking security over the shares in the property holding company which owns such property rather than by way of a hypothec over the property.

    An ‘opposition’, although not a hypothec, is another potential way to safeguard the position of creditors. A creditor can ‘oppose’ the passing of a conveyance by a debtor if the debtor is intending to sell the land. A creditor can ‘oppose’ if he has asked the debtor to repay or provide adequate security for the debt, is acting in good faith and is not abusing his right to oppose the passing of the contract of sale. An opposition is obtained by application to the Bailiff in Chambers.

    Plant and machinery; equipment; inventory. Plant and machinery, equipment and inventory classed as tangible movable property can only be dealt with by way of a pledge. Under Jersey law, property can only be pledged if there has been actual physical delivery, rather than constructive delivery, of the property to the creditor.

    Jersey law does not have a concept of a floating charge.

    Receivables. Security can be created over contractual rights arising under Jersey law governed contracts (including Jersey law lease agreements) by way of description with security attaching when a security agreement in writing signed by or on behalf of the grantor contains a description of the collateral sufficient to enable it to be identified.

    Security can also be created in respect of custody accounts by:

    a) control – where (i) the account is transferred into the name of the secured party; (ii) the grantor, intermediary maintaining the account and the secured party agree in writing that the intermediary will act on the secured party’s instructions; or (iii) the secured party is the intermediary; and
    b) description – security attaches when a security agreement in writing signed on or behalf of the grantor contains a description of the collateral sufficient to enable it to be identified.

    Where the intermediary and the secured party are the same legal entity, no further steps are required to create or perfect security by control over the relevant custody account.

    See comments below in relation to formalities necessary to perfect security by way of registration of contractual rights generally.

    Shares in Jersey companies. Security can be created over shares in a Jersey company by:

    a) possession – a secured party will have a security interest by possession when it (or someone on its behalf other than the grantor) takes possession of the certificates representing the shares;
    b) control – a secured party will have control over the investment securities if (i) the secured party is the registered holder of the shares or (ii) the secured party is in possession of the certificates of title to the shares;
    c) description – security attached when a security agreement in writing signed by or on behalf of the grantor contains a description of the collateral sufficient to enable it to be identified.

    See comments below in relation to formalities necessary to perfect security over shares.

    Foreign Law Security Document. A foreign law security agreement over Jersey assets would unlikely be enforceable in Jersey due to, amongst other things, the lack of compliance with formal validity requirements.

  5. Can a company that is incorporated in your jurisdiction grant security over its future assets or for future obligations?

    A judicial hypothec will secure all of the immovable property of a hypothecary debtor but such a hypothec must relate to a particular liability and the ‘billet’ or acknowledgment will refer to that liability. The hypothec must be created for a specific sum. The hypothec will only secure the property owned at the date of registration and not any future property.

    It is possible to take security over all present and future intangible movable property held by the grantor in Jersey from time to time. Under the Security Interests (Jersey) Law 2012 (SIL), a security interest attaches to an asset under a security agreement when:

    a) value is given in respect of the security agreement;
    b) the grantor has rights in, or the power to grant such rights, in that asset; and
    c) either:
    i. the secured party (or someone on its behalf other than the grantor) has possession or control of that asset; or
    ii. the security agreement contains a description of the asset sufficient to enable it to be identified.

    When these elements are satisfied, a security interest in the asset has been created and has ‘attached’ and it can now be enforced by the lender against the grantor. Once a security interest has attached, it must be perfected to ensure that it is enforceable against third parties subject to the priority rules. If a security interest is not perfected, amongst other things:

    a) it is void against the Viscount (the Jersey court appointed insolvency officer) or liquidator on the insolvency of the grantor;
    b) it will rank after all perfected security interests;
    c) the ability to enforce the security interest against proceeds may be lost; and
    d) a person who acquires the collateral for value will take free of the security interest, unless such security interest was created or provided for by a transaction to which that person was a party.

    A security agreement may be expressed as securing all present and future obligations under specific finance document or as securing all monies owed at any time to the lender. SIL makes it clear that the making of further advances can be envisaged in a security agreement and that a security interest is not extinguished by repayment of a current advance and a redraw. Further, the priority given to the security is the same for all advances.

  6. Can a single security agreement be used to take security over all of a company’s assets or are separate agreements required in relation to each type of asset?

    Unlike in other jurisdictions, it is not possible under Jersey law to take security over all assets and undertaking of a company in one single agreement.

    The methods of creating security over Jersey real property and tangible movable property are described in question 4 above.

    In the case of Jersey intangible movable property, under SIL it is possible to take security over various classes of asset in one security agreement. SIL envisages that enforcement powers may be exercised more than once and in respect of all or part of the collateral secured.

  7. Are there any notarisation or legalisation requirements in your jurisdiction? If so, what is the process for execution?

    There are no particular documentary or execution requirements in Jersey.

  8. Are there any security registration requirements in your jurisdiction?

    Land. The ‘billet’ acknowledging the debt is lodged with the Registry of Deeds and registered in the Public Registry of Jersey on a Friday and once recorded in the Public Registry is enforceable against the real estate of the debtor over which it is secured. The form of an acknowledgement of indebtedness is prescribed in the Jersey Royal Court rules. A judicial hypothec needs to be re-registered to remain effective against third parties before the elapse of 30 years from its creation.

    It is possible for a creditor to hold an unregistered ‘billet’ signed by the debtor with an authority to register it but a third party purchaser of the property will take free of that debt as it is not secured until it is registered.

    Intangible Movable Property. Under the SIL, registration is critical for collateral where the security interest cannot be perfected by way of possession or control, for example, a security interest over contractual rights.

    It is current market practice to register security even where a security interest has been perfected by way of control or possession for the purposes of:

    a) protecting against the loss of possession or control of the collateral, for example where the lender misplaces a share certificate following completion of a secured financing; or
    b) ensuring perfection of security over the proceeds of collateral.

    Registration of a security interest may not be possible for every transaction either as a matter of law or following a commercial agreement between the parties.

    The Security Interests (Registration and Miscellaneous Provisions) (Jersey) Order 2013 provides that it is not possible to register a security interest over property of a trust other than a Jersey property unit trust.

  9. Are there any material costs that lenders should be aware of when structuring deals (for example, stamp duty on security, notarial fees, registration costs or any other charges or duties), either at the outset or upon enforcement? If so, what are the costs and what are the approaches lenders typically take in respect of such costs (e.g. upstamping)?

    Fees payable in relation to the registration of security under SIL are as follows:

    • registration – £8 per year (up to a maximum of £150);
    • amendment of registration - (other than expiry date) £8;
    • discharge – no fee;
    • extension of expiry date – fees for registration apply;
    • affecting a global change of multiple registrations (other than expiry date) - £100;
    • search – free to view search results (with limited data) and £4 to obtain copy financing statement; and
    • filing of change demand - £25.

    Stamp duty is payable when a lender registers any hypothec. It is calculated at a rate of 0.5% of the amount of the debt secured over the property in favour of the lender plus the registration fee (currently £80). Stamp duty must be paid in full before the required charge document can be registered at the Jersey Public Registry.

    Land transaction tax (LTT) is payable when a lender takes security over a share transfer property situated in Jersey and is calculated at a rate of 0.5% of the amount of the debt to be secured. LTT only applies to residential property or those companies whose articles confer rights of occupation to their shareholders.

    All costs associated with a transaction, for example, registration fees and stamp duty costs are reimbursed by the principal debtor to the lender in the usual manner under the terms of the specific security agreement or more likely the underlying facility agreement.

  10. Can a company guarantee or secure the obligations of another group company; are there limitations in this regard?

    Yes, a company may guarantee the obligations of another group company and this is a common feature of cross border transactions involving Jersey companies.

    Whilst a Jersey company under the Companies (Jersey) Law 1991 (the CJL) has unlimited corporate capacity, counsel acting for a lender should review the constitutional documents of the guarantor company to ensure that there are no limits on the authority of the director to enter into the guarantee.

  11. Are there any issues that lenders should be aware of when requesting guarantees (for example, financial assistance or lack of corporate benefit)?

    Corporate Benefit. Corporate Benefit. The directors of a Jersey company granting a guarantee must be satisfied that the granting of the guarantee does not give rise to corporate benefit issues and the entry into the guarantee is in the best interests of the company. If there is no discernible corporate benefit to the company, shareholder approval or ratification should be obtained in accordance with the CJL.

    Droit de Division and Droit de Discussion. Any guarantee entered into by a Jersey company should include express wording waiving two Jersey customary law procedural rights known as the droit de division and the droit de discussion. These rights may qualify the enforceability of the guarantee against the guarantor. Under the droit de division, a co-obligor may require the joint obligations of the various co-obligors to be divided equally so that they become several obligations only of each co-obligor. Under the droit de discussion, a guarantor may require the creditor to exhaust its remedies against the principal debtor (the person whose obligations have been guaranteed) before seeking recourse from the guarantor.

    Distribution. Where a Jersey company provides a guarantee in respect of the obligations of its parent, consideration would be given as to whether such a guarantee could be deemed a distribution. Under the CJL, a distribution includes a distribution of any assets of a company to its members. Should the entry into a guarantee be deemed to be a distribution, certain requirements of the CJL will need to be complied with.

    Financial Assistance. Financial assistance has been abolished in Jersey. The directors of a Jersey company granting a guarantee must be satisfied that the granting of the guarantee does not give rise to corporate benefit issues and the entry into the guarantee is in the best interests of the company. If there is no discernible corporate benefit to the company, shareholder approval or ratification should be obtained in accordance with the CJL.

    Droit de Division and Droit de Discussion. Any guarantee entered into by a Jersey company should include express wording waiving two Jersey customary law procedural rights known as the droit de division and the droit de discussion. These rights may qualify the enforceability of the guarantee against the guarantor. Under the droit de division, a co-obligor may require the joint obligations of the various co-obligors to be divided equally so that they become several obligations only of each co-obligor. Under the droit de discussion, a guarantor may require the creditor to exhaust its remedies against the principal debtor (the person whose obligations have been guaranteed) before seeking recourse from the guarantor.

    Distribution. Where a Jersey company provides a guarantee in respect of the obligations of its parent, consideration would be given as to whether such a guarantee could be deemed a distribution. Under the CJL, a distribution includes a distribution of any assets of a company to its members. Should the entry into a guarantee be deemed to be a distribution, certain requirements of the CJL will need to be complied with.

    Financial Assistance. Financial assistance has been abolished in Jersey.

  12. Are there any restrictions against providing guarantees and/or security to support borrowings incurred for the purposes of acquiring directly or indirectly: (i) shares of the company; (ii) shares of any company which directly or indirectly owns shares in the company; or (iii) shares in a related company?

    No, subject to our comments above.

  13. Can lenders in a syndicate appoint a trustee or agent to (i) hold security on the syndicate’s behalf, (ii) enforce the syndicate’s rights under the loan documentation and (iii) apply any enforcement proceeds to the claims of all lenders in the syndicate?

    The concept of agency and relationships of trust are recognised under Jersey law. Accordingly, agents or trustees can hold security on the behalf of a syndicate. With reference to the facility agreement (or other related agreement, such as an inter-creditor agreement), a security trustee or agent may enforce the syndicate's rights under the loan documentation and apply any enforcement proceeds to the claims of all lenders in the syndicate.

  14. If your jurisdiction does not recognise the role of an agent or trustee, are there any other ways to achieve the same effect and avoid individual lenders having to enforce their security separately?

    This is not applicable, see our comments above.

  15. Does withholding tax arise on (i) payments of interest to domestic or foreign lenders, or (ii) the proceeds of enforcing security or claiming under a guarantee?

    No it does not.

  16. If payments of interest to foreign lenders are generally subject to withholding tax, what is the standard rate and what is the minimum rate possible under double taxation treaties?

    This is not applicable.

  17. Are there any other tax issues that foreign lenders should be aware of when lending into your jurisdiction (for example, will any income become taxable in your jurisdiction solely because of a loan to or guarantee and/or grant of security from a company in your jurisdiction)?

    Any income of a foreign lender will not become taxable in Jersey solely because of a loan to or guarantee and/or grant of security from a Jersey company and a lender is not nor will it be deemed to be resident, domiciled or carrying on business in Jersey by reason only of the execution, performance and/or enforcement of a loan agreement, guarantee or security agreement.

  18. Are there any tax incentives available for foreign lenders lending into your jurisdiction?

    No. As an offshore international finance centre, Jersey does not offer tax incentives to foreign lenders lending into Jersey.

  19. Is there a history in your jurisdiction of financing structures being challenged by tax authorities, and if so, can you give examples.

    No.

    Jersey is an offshore international finance centre which has been at the forefront of the global finance industry for over 50 years. Jersey is economically stable, politically independent and tax neutral with a sophisticated legal, regulatory and technological infrastructure. It has recently (12 March 2019) been formally confirmed by the EU Finance Ministers (ECOFIN) as a cooperative jurisdiction following an extended period of screening.

    Jersey has evolved into one of the best regulated international finance centres and has been acknowledged by independent assessments from some of the world’s leading bodies, including the World Bank and IMF, as well as scoring top marks from the OECD on tax transparency. Jersey was also subject to a Mutual Evaluation by MONEYVAL in 2016 and found to be ‘compliant’ or ‘largely compliant’, with 48 out of 49 of the FATF Recommendations, the highest score amongst all states assessed.

  20. Do the courts in your jurisdiction generally give effect to the choice of other laws (in particular, English law) to govern the terms of any agreement entered into by a company incorporated in your jurisdiction?

    The express choice of governing law to govern the terms of an agreement entered into by a Jersey company will be upheld as a valid choice of law and will, accordingly, be applied by the Jersey courts if that agreement or any contractual claims thereunder come under their jurisdiction and (if a foreign law is chosen) upon proof of the relevant provisions of that law, provided that the express choice of governing law is bona fide and not made with any intention to evade the laws of the jurisdiction with which the transaction under that agreement has the closest and most real connection.

  21. Do the courts in your jurisdiction generally enforce the judgments of courts in other jurisdictions (in particular, English and US courts) and is your country a member of The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (i.e. the New York Arbitration Convention)?

    Reciprocal Jurisdictions. A final and conclusive judgment under which a sum of money is payable (not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or penalty) obtained against a Jersey company in the relevant courts of England and Wales, Scotland, Northern Ireland, Guernsey and the Isle of Man having jurisdiction in a case against a Jersey company would be recognised as a valid judgment by the Jersey courts and would be enforceable in accordance with and subject to the provisions of the Judgments (Reciprocal Enforcement) (Jersey) Law 1960 without re-examination on the merits. The creditor of such a judgment must apply to have it enforced in Jersey within 6 years from the date the decision is handed down or the date of the judgment on the last appeal.

    Non-Reciprocal Jurisdictions. The Jersey courts would recognise any final and conclusive judgment under which a sum of money is payable (not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty) obtained against a Jersey company in the courts of a non-reciprocal jurisdiction such as New York if that court had jurisdiction in accordance with the principles of private international law as applied by Jersey law (which are broadly similar to the principles accepted under English law) and such judgment would be sufficient to form the basis of proceedings in the Jersey Courts for a claim for liquidated damages in the amount of such judgment. ln such proceedings, the Jersey Courts would not re-hear the case on its merits save in accordance with such principles of private international law.

    If a judgment from the court of a non-reciprocal jurisdiction (Foreign Court) is obtained, the creditor must commence an action before the Royal Court of Jersey. Recognition and enforcement of such a judgment by a Jersey court would be conditional upon, amongst other things, that Foreign Court having jurisdiction over the original proceedings and that judgment not having been obtained by fraud.

    Arbitration. A foreign arbitration award to which the New York Convention on the Recognition and Enforcement of Foreign Arbital Awards adopted by the United Nations Conference on International Commercial Arbitration on 10 June 1958 applies shall, subject to the provisions of the Arbitration (Amendment) (Jersey) Law 1999, be enforceable in Jersey either by action or leave of the court.

  22. What (briefly) is the insolvency process in your jurisdiction?

    Jersey Insolvency Procedures. The main Jersey insolvency procedures for a Jersey company are:

    a) a creditors’ winding up under the CJL. This is commenced by a special resolution of the shareholders and, despite its name, cannot be commenced by a creditor; and
    b) a désastre under the Bankruptcy (Désastre) (Jersey) Law 1990 (the Désastre Law). This may be commenced on application to the Royal Court by a creditor owed a liquidated sum of not less than £3,000, the Jersey company itself or, in some circumstances, the Jersey Financial Services Commission. If a creditors’ winding up has already commenced when a declaration of désastre is made, the winding up terminates.

    The CJL also contains provisions relating to just and equitable winding up and schemes of arrangement.

    On a creditors’ winding up, liquidators are appointed, usually by the creditors. The liquidators will stand in the shoes of the directors and administer the winding up, gather in assets, settle claims and distribute assets as appropriate. After the commencement of the winding up, no action can be taken or continued against the Jersey company except with the leave of court. This does not prevent secured creditors enforcing their pre-existing security against the property of the Jersey company. The corporate state and capacity of the company continues until the end of the winding up procedure, when the company is dissolved.

    On a declaration of désastre, title of all property of the debtor (whether located in Jersey or elsewhere) vests automatically in the Viscount, an official of the Royal Court of Jersey. From the date of declaration, a creditor has no other remedy against the property or person of the debtor, and may not commence or continue any legal proceedings to recover the debt. This does not prevent secured creditors enforcing their pre-existing rights against the property now vested in the Viscount, as the Viscount takes the property of the debtor subject to security.

    Shares of a company which is subject to a creditors’ winding up or a désastre may not be transferred without the consent of the liquidators or the Viscount, as the case may be. As noted above, this does not apply to a creditor with a perfected security interest over the shares created under SIL from enforcing its security.

    The liquidators, on a creditors’ winding up, may exercise all powers of the Jersey company as may be required for its winding up. The liquidators also have express powers to pay its debts.

    The Viscount, on a désastre, has wide powers to sell all or part of the debtor’s property, carry on the business of the debtor as far as is necessary for its beneficial disposal, pay debts, enter into compromises and arrangements with creditors, and exercise any authority and power in respect of the debtor’s property which the debtor could otherwise have exercised.

    The liquidators or the Viscount may apply to the Royal Court of Jersey for, amongst other things, an order that the directors of the Jersey company be personally responsible for the debts and liabilities of the Jersey company on the grounds of wrongful trading.

    The liquidators or the Viscount (as applicable) will apply the realised assets of the Jersey company in the following order:

    a) payment of the fees and expenses of the liquidators or the Viscount;
    b) payment of up to six months’ salary and holiday pay and bonuses of any employee (subject to statutory limits);
    c) certain amounts due in respect of health insurance, social security, income tax, rent and parish rates; and
    d) payment of all proved debts.

    The vast majority of Jersey companies carry on business outside Jersey, so paragraphs b) and c) above will not usually apply.

  23. What impact does the insolvency process have on the ability of a lender to enforce its rights as a secured party over the security?

    If a debtor owns property in Jersey, orders can be sought one month following the issue of an unsatisfied court judgment for an Acte Vicomte charge d’ecrire. Following this act of the Jersey court, if the judgment is not satisfied within a further two months, the debtor’s property will be deemed to have been renounced. At that time, a creditor can seek orders for a degrevement (immovable property) and realisation (movable property).

    In a degrevement the real estate of the debtor is offered firstly to its unsecured creditors and then to its secured creditors (those who hold a judicial or conventional hypothec registered against its immovable property in Jersey) in reverse order of the creation of the hypothecs but subject to the interests of the holders of the prior hypothecs.

    If a debtor who owns immovable property in Jersey is declared en desastre (another form of Jersey insolvency) title to that property vests automatically in the Viscount who will then realise the assets of the debtor. The holder of a registered hypothec will be secured and will be entitled to be repaid from the realisation.

    In the case of intangible movable property, the SIL provides that the grantor of the security becoming bankrupt (as a matter of Jersey law) or the grantor or its property becoming subject, whether in Jersey or elsewhere, to any other insolvency proceedings, will not affect the power of the secured party to appropriate or sell, or otherwise act in relation to, collateral under the SIL.

    However, the SIL provides that where the grantor is bankrupt, the security interest is void against the Viscount (an insolvency practitioner in Jersey) or liquidator and the grantor’s creditors unless the security interest is perfected before the grantor becomes bankrupt. A perfected security interest could nonetheless be challenged as a transaction at an undervalue or preference under insolvency legislation or other grounds.

    Where collateral is subject to security under the SIL, the proceeds of enforcement are applied in accordance with the provisions of that law. Any surplus after deduction of the enforcing security party's reasonable costs and the monetary value of the secured obligations will be used to pay:

    a) any person with a subordinate security interest;
    b) any other person (other than the grantor) who has given the secured party notice of a proprietary interest in the collateral; and
    c) finally the grantor (or, in the case of the grantor's insolvency, the relevant official).

  24. Please comment on transactions voidable upon insolvency.

    Transactions at an Undervalue and Preferences. On the application of a liquidator (in a winding up) or of the Viscount (in a désastre) the Jersey Courts may make such an order as they think fit for restoring the position to what it would have been if the Jersey company had not entered into either of the following types of transaction:-

    a) a transaction with any person at an undervalue at any time in the period of five years ending with the date of the commencement of the winding up or the declaration of the assets of the Jersey company "en désastre"; or

    b) a transaction under which a preference is given at any time within the period of one year ending with the date of the commencement of the winding up or the declaration of the assets of the Jersey company "en désastre",

    provided that the Jersey company was insolvent when it entered into the transaction or became insolvent as a result of the transaction, save for where the transaction was entered into with a person connected with the Jersey company or with an associate of the Jersey company, in which case, unless the relevant person or associate can prove that the Jersey company was not insolvent or did not become insolvent as a result of the transaction, the requirement that the Jersey company was insolvent at the time of the transaction or became insolvent as a result of the transaction need not be met.

    A Jersey company will be treated as having entered into a transaction with a person at an undervalue if:-

    a) it makes a gift to that person;

    b) it enters into a transaction with that person:

    i. on terms for which there is no "cause" (a Jersey customary law concept which is the reason or purpose for entering into a contract and is loosely equivalent to the concept of consideration); or
    ii. for a "cause" the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the "cause" provided by the Jersey company.

    The Jersey Courts shall not make any order in respect of a transaction at an undervalue if it is satisfied that the Jersey company entered into the transaction in good faith for the purpose of carrying on its business and that, at the time it entered into the transaction, there were reasonable grounds for believing that the transaction would be of benefit to the Jersey company.

    The Jersey company will be treated as having given a preference to another person if:

    a) that person is a creditor of the Jersey company or a surety or guarantor for a debt or other liability of the Jersey company; and

    b) the Jersey company:

    i. does anything, or
    ii. suffers anything to be done,

    that has the effect of putting the person into a position which, in the event of the winding up of the Jersey company or its property being declared en désastre will be better than the position he or she would have been in if that thing had not been done.

    The Jersey Courts may not make an order in respect of a preference given to any person unless the Jersey company, when giving the preference, was influenced in deciding to give it by a desire to prefer that person. If the Jersey company gave a preference to a person who was, at the time the preference was given, an associate of or connected with the Jersey company (otherwise than by reason only of being the Jersey company's employee) the Jersey company shall be presumed, unless the contrary is shown, to have been influenced in deciding to give the preference by the desire referred to above.

    Extortionate Credit Transactions. The Jersey Courts may, upon application to it in the course of a creditors' winding up or désastre proceedings in respect of a Jersey company, set aside, vary or otherwise make such order as it thinks fit in relation to any extortionate credit transaction entered into in the period of three years ending with the date of the commencement of the creditors' winding up or the declaration of désastre. The CJL and the Bankruptcy (Désastre) (Jersey) Law 1990 provides that a transaction is extortionate if, having regard to the risk accepted by the person providing the credit, the terms of it are or were such as to require grossly exorbitant payments to be made in respect of the provision of credit or it otherwise grossly contravened ordinary principles of fair trading.

    Disclaimer of Onerous Property. Within six months of the commencement of a creditors' winding-up of a Jersey company or the making of a declaration of désastre in relation to its property, the liquidator or the Viscount (as the case may be) has the power to disclaim any onerous movable property (and onerous immovable property situate outside the Island or any contract lease).

  25. Is set off recognised on insolvency?

    Jersey law provides for contractual and non contractual set off.

    Contractual Set Off. The Bankruptcy (Netting, Contractual Subordination and Non-Petition Provisions) (Jersey) Law 2005 (the 2005 Law) provides that despite any enactment or rule of law to the contrary, any set off provision in a finance document is enforceable in accordance with its terms against a Jersey company despite the bankruptcy (which will include any procedure analogous to bankruptcy (as defined in Article 8 of the Interpretation (Jersey) Law 1954) or any similar procedure under any applicable law) of a party to the agreement or of any other person, or the lack of mutuality of obligations between a party to the agreement and any other person.

    Non Contractual Set Off. Prior to the insolvency of a party to any finance documents, Jersey customary law contains the concept of compensation, being a non contractual set off. For compensation to be available, the debts must be certain and due which will not be the case if a debt is not admitted or not capable of being readily proved without material litigation.

    In the case of the insolvency of a party to any finance documents (where that insolvency is one in respect of which the Jersey courts have jurisdiction), the issue of set off will be determined in accordance with the Bankruptcy(Désastre) (Jersey) Law 1990 which requires that, where there have been mutual credits, mutual debts or other mutual dealings between the debtor and a creditor, an account shall be taken of what is due from one party to the other as at the date of the declaration of désastre in respect of such mutual dealings, and that the sum due from one party shall be set off against any sum due from the other party and that the balance shall be claimed or paid on either side respectively.

    Netting. The 2005 Law provides that despite any enactment or rule of law to the contrary, any close out netting provision in a finance document is enforceable in accordance with its terms against a Jersey company despite the bankruptcy (which will include any procedure analogous to bankruptcy (as defined in Article 8 of the Interpretation (Jersey) Law 1954) or any similar procedure under any applicable law) of a party to the agreement or of any other person, or the lack of mutuality of obligations between a party to the agreement and any other person.

    It should be noted that none of the provisions of the 2005 Law referred to in this paragraph will affect the application of any enactment or rule of law that renders a set off provision or close out netting provision unenforceable on the grounds of fraud or misrepresentation or the enforceability of any provision of an agreement that provides that a set off provision or close out netting provision shall be void in the event of fraud or misrepresentation.

  26. Can you comment generally on the success of foreign creditors in enforcing their security and successfully recovering their outstandings on insolvency?

    Where (a) a foreign creditor held valid security which it enforced, and (b) the value of its debt is in excess of the enforcement proceeds, it is entitled to claim in désastre proceedings for the balance. Enforcement of Jersey security is comparatively rare and we are not aware of any particular issues arising.

  27. Are there any impending reforms in your jurisdiction which will make lending into your jurisdiction easier or harder for foreign lenders?

    The SIL which came into force on 2 January 2014 brought about wholesale changes to the way security is created in respect of intangible movable property in Jersey. Jersey continues to develop its products for use globally and the extension of the SIL regime to tangible movables remains a matter which is under consideration.

  28. What proportion of the lending provided to companies consists of traditional bank debt versus alternative credit providers (including credit funds) and/or capital markets, and do you see any trends emerging in your jurisdiction?

    Lending from Jersey banks tends to be limited to transactions involving local real estate or local businesses or in the context of private banking to global high net worth individuals.

    A significant value of lending involves foreign financial institutions lending to Jersey corporate vehicles which hold foreign real estate assets. Such lending takes the form of bank debt arrangements from traditional financial institutions. Whilst alternative investment providers (usually in the context of a mezzanine lender) operate in providing debt to such corporate structures, the large majority of the lenders remain the traditional blue chip financial institutions.

    The fund finance sector in Jersey continues to grow with local banks participating both in club and bilateral transactions to Jersey domiciled funds. These bridge facilities can range in size from £10 million to £250 million.

    Listings on The International Stock Exchange of public and more specialist debt securities remain popular as do the use of Jersey corporates as issuers for high yield and corporate bonds.