Appropriation and valuation of Jersey collateral – case law update


Under the Security Interests (Jersey) Law 2012 (the “Security Law”), one method of security enforcement is for the secured party to appropriate the collateral.

Under this method of security enforcement, the secured party becomes the owner of the collateral without the need for a court order.

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The value of the collateral is determined by the secured party. If the value of the collateral is less than the secured liabilities, the grantor remains liable for the shortfall (unless otherwise agreed). If the value of the collateral is greater than the secured liabilities, the secured party has to account to the grantor for the surplus value.

The secured party owes a number of duties under the Security Law. One of the duties is “to take all commercially reasonable steps to determine the fair market value of the collateral, as at the time of the appropriation.”

It is therefore an important aspect of appropriation that appropriate steps are taken to determine the fair market value of the collateral.

ABT Auto Investments Limited

There is no Jersey case law which has considered this duty in detail.

However, there has been an English law case which has considered appropriation as a matter of English law.

This case is ABT Auto Investments Limited v Aapico Investment Pte Limited and others [2022] EWHC 2839.

The judgment provides helpful guidance to a secured party when dealing with the practical difficulties of valuing collateral as a matter of English law.

The English law case is not binding on the Jersey courts and the language of the English legislation is different from the Security Law.

However, there are a number of key principles which can be taken from the case which a Jersey court is likely to follow.

Key principles from ABT Auto Investments Limited

The key principles from the case include the following:

  • The secured party is responsible for the valuation. The secured party cannot discharge its duty by simply saying that it has instructed a competent third party to value the collateral. If a third party valuer is instructed and the third party valuer has not carried out the valuation in a commercially reasonable manner, then the valuation will not have been carried out in a commercially reasonable manner.
  • Focus on the method, not the result. The way in which the valuation is made must be commercially reasonable. It does not necessarily follow that the result itself must be a commercially reasonable one.
  • Reasonable expectations. The requirement for the valuation to be made in a commercially reasonable manner imports an objective standard. The subjective views of the secured party or the third party valuer as to what is commercially reasonable are irrelevant. In cases which do not involve the financial markets (such as where the collateral is shares in an unlisted private company), the manner of valuation should conform to “the reasonable expectations of sensible businessmen”.
  • Range of approaches. The question of what is commercially reasonable is fact sensitive. Depending on the facts, there may be several approaches to valuation and each of these may be commercially reasonable. Therefore, some latitude can be given to a secured party concerning the appropriate method of valuation.
  • Self-interest. Where there is a range of approaches that could be regarded as commercially reasonable, the secured party should not deliberately adopt the approach which produces the lowest valuation or which otherwise suits it best.

Appropriation under Jersey law

The remedy of appropriation is a progressive self-help remedy which is available to a secured party when enforcing Jersey security.

Under the English legislation (being the Financial Collateral Arrangements (No.2) Regulations 2003), appropriation is only available for certain types of collateral.

In contrast, the Jersey regime is more expansive. The remedy of appropriation applies to any intangible movable property.

That being said, the common focus of Jersey security in this context is security taken over shares or units in real estate financings (such as security over the shares in the Jersey company which owns the real estate and security over the units issued by a Jersey property unit trust).

The principles established by ABT Auto Investments Limited provide helpful guidance to a secured party when appropriating Jersey collateral.

In addition, where the Jersey security interest is held by a security trustee, it may be possible in appropriate cases for the secured party to obtain the approval of the court to the proposed appropriation and therefore obtain comfort that relevant duties are being discharged. There is no requirement to obtain a court order before enforcing security but the Jersey courts have previously provided assistance to a security trustee selling collateral and similar assistance may be available to a security trustee who is appropriating collateral.

Richard HoldenPartnerT 44 (0) 1534 700 823
Nigel SandersPartnerT +44 (0) 1534 700
Marc SeddonPartnerT +44 (0)1534 700
Nigel WestonPartnerT +44 (0)1534 700
Fraser HernGroup Partner*T +44 (0) 20 7903
Julia KeppeGroup Partner*T +44 (0) 1534 700
Jon Le RossignolGroup Partner*T +44 (0) 1534 700

Fraser HernGroup Partner*T +44 (0) 20 7903

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