Draft Security Interests (Jersey) Law 200-: Consultation Paper.

STATES OF JERSEY

DRAFT SECURITY INTERESTS (JERSEY) LAW 200-: CONSULTATION PAPER

Presented to the States on 22nd June 2009 by the Minister for Economic Development

STATES GREFFE

2009   Price code: E  R.67

Economic Development Department

White Paper

Draft Security Interests (Jersey) Law 200-  June 2009

The  Economic  Development  Department  invites  comments  on  the  draft  Security Interests (Jersey) Law 200-, a copy of which is attached to this Consultation Paper.

The closing date for responses is Friday 31st July 2009. Responses should be sent to:

James Mews

Director, Finance Industry Development Chief Minister's Department

5th Floor, Cyril Le Marquand House The Parade

St. Helier

JE4 8QT

Telephone:  01534 440413 Facsimile:  01534 440408 e-mail:  j.mews@gov.je  

Robert Kirkby at Jersey Finance Limited is co-ordinating an industry response that will incorporate any matters raised by local firms or entities. His contact details are:

Robert Kirkby Technical Director Jersey Finance Limited 27 Hill Street

St Helier

JE2 4UA

Telephone:  01534 836004

Facsimile:  01534 836001

e-mail:  Robert.Kirkby@jerseyfinance.je

It is the policy of Jersey Finance to make individual responses it receives available to the Economic Development Department upon request, unless a respondent specifically requests otherwise.

Public  submissions –  Please  note  that  responses  submitted  to  all  States  public consultations may be made public (sent to other interested parties on request, sent to the  Scrutiny  Office,  quoted  in  a  final  published  report,  reported  in  the  media, published on a States of Jersey website, listed on a consultation summary, etc.). If a respondent has a particular wish for confidentiality, such as where the response may concern an individual's private life, or matters of commercial confidentiality, please indicate this clearly when submitting a response.

INDEX OF CONTENTS

Page No.

1. Introduction  5
2. Scope  7
3. Attachment and Perfection  13
4. Priorities  15
5. Transfer of Debtor's Interest in Collateral  16
6. Persons Taking Free of Security Interest  17
7. Assignments of Receivables  17
8. Enforcement of Security Interests  19
9. Registration  20
10. Effect of Debtor's Bankruptcy  22
11. Commencement and Transitional Provisions  22 Draft Security Interests (Jersey) Law 200-  25

1. INTRODUCTION

1. The  Economic  Development  Department  invites  comments  on  the  draft Security Interests (Jersey) Law 200- ("the draft Law"), a copy of which is attached to this Consultation Paper. The draft Law would replace the existing Security Interests (Jersey) Law 1983 to provide a modern framework for creating security under Jersey law.

Improving the existing law

2. Intangible property in general and investment securities in particular are of huge  importance  as  collateral  in  modern  financing.  Jersey  is  a  leading  offshore international finance centre, with £246 billion of funds under management in 2007, and  its  finance  industry  contributes  60%  of  the  Island's  gross  domestic  product. However, in the light of recent developments the legal framework to accommodate security interests in intangibles could be amended, notably in the principal enactment, the  Security  Interests  (Jersey)  Law  1983,  in  the  areas  of  security  interests  in unidentified  future  property  or  a  global  security  over  intangibles.  For  non- documentary intangibles (see paragraph 10) the method of creation by title transfer could  be  improved,  and  charges  (hypothecation)  permitted  over  movables.  An agreement by which control of a deposit account or securities account is given to the creditor is not effective to create a security interest in all circumstances. A security interest  cannot,  it  seems,  be  given  to  secure  the  indebtedness  of  a  third  party. Machinery for the registration of security interests could be created, and for such interests as this is relevant such a development would provide a means of discovering their existence. Finally, the only default remedy is sale, and that requires a court order except where otherwise provided by the security agreement or in cases falling within Article 8(5) of the 1983 Law. This Law repeals the 1983 Law in its entirety.

Purpose of this Law

3. The  central  objective  of  this  Law  is  to  provide  Jersey  with  a  simplified, modern,  efficient  legal  regime  for  the  creation,  perfection,  priority,  transfer  and enforcement of consensual security interests in intangible movables ("collateral") and their proceeds. It is designed to give Jersey one of the most up-to-date legal regimes in this field and thereby to enhance Jersey's attractiveness both to local and to foreign investors. This Law will also cover, for the purposes of perfection and priority only, outright assignments of receivables, that is, assignments made otherwise than by way of security. The overriding aim is to facilitate the creation and protection of security interests and assignments with the minimum of formality and to lay down priority rules that meet the reasonable expectations of the business community. A number of provisions reflect in very simplified form the approach adopted by Article 9 of the American  Uniform  Commercial  Code,  which  has  long  been  in  force  in  all 50 jurisdictions of the United States and has been transplanted into the Canadian Provinces and, more recently, into New Zealand. In addition, much assistance has been derived from the English Law Commission's report Company Security Interests so far as this relates to intangibles.

Principal features

4. The principal features of this Law are the following:

• A unified concept of security interest which accommodates not only security  by  possession  and  title  transfer,  but  also  hypothecation (charge);

• The ability to ensure the creation of a security interest in present and future intangibles with the minimum of formality through a single agreement;

• Provision for a modern electronic filing system in which registrations may be effected and searches made on a computer-to-computer basis without human intervention, and which is based on notice-filing rather than transaction filing;

• Perfection by control, as an alternative to registration, for security interests in deposit accounts and investment securities;

• A set of priority rules, including protection against general insolvency creditors, which respond to the reasonable expectations of the market; and

• A range of efficient, easily exercisable default remedies, but with safeguards for the debtor.

5. No  security  over  intangible  movable  property  which  is  a  security  falling within the draft Law may be created except under the draft Law (Article 102(1)). However, nothing in the draft Law excludes its application to a security interest created  under  a  foreign  law  (Article 102(2))  (see  further  paragraphs  16  and  17); indeed, if such a security interest is taken over property situated in Jersey it will not be recognised unless it conforms to Jersey law.

Structure

6. Apart from the definitions set out in Article 1, the draft Law covers 8 main areas. Parts 1 to 3 lay down the conditions for the attachment and perfection of security interests and assignments of receivables, that is, assignments otherwise than by way of security. Part 4 deals with the priority of competing interests in collateral and the protection of purchasers. Part 5 is devoted to transfers of collateral by the debtor, and Part 6 the protection of purchasers and others in a similar position. Part 7 sets out the rights of an assignee of receivables and Part 8 the methods of enforcement of security interests. Part 9 deals with the registration of security interests (including security  assignments  of  receivables)  and  outright  assignments  of  receivables. Registration  is  effected  by  filing  of  a  financing  statement  containing  prescribed particulars, and renewal, discharge or amendment of a financing statement by filing of a financing change statement. Finally, Schedule 2 contains transitional provisions.

2. SCOPE

Subject-matter covered by the draft Law

2.1  The draft Law applies to consensual security interests in intangible movable property (see paragraph 9 below) and intangible proceeds, and proceeds of proceeds, of such property, and in addition, for the purposes of perfection and priority only, the outright assignments of receivables. Outright assignments or re-assignments of other forms of intangible, such as loan debts, fall outside the draft Law, as do interests in land,  which  are  subject  to  a  distinctive  legal  regime.  Security  interests  and assignments taking effect by operation of law are also outside the scope of the draft Law (Article 8). The draft Law is confined to security interests created after the draft Law comes into force.

"Security agreement; security interest"

2. A security agreement means an agreement that creates or makes provision for a security interest, and include an agreement that varies, renews or extends a security agreement and also writing that evidences a security agreement. A security interest is an interest in intangible movable property, being an interest that, under a security agreement, secures payment or performance of an obligation. The phrase "security interest" is thus a generic term covering all existing forms of security created or provided for by a security agreement, including mortgages, charges (hypothecations), pledges and contractual liens. Parties are free to adhere to existing terminology in their agreements but for the purposes of the draft Law the old labels are replaced by the single label "security interest". To avoid doubt, Article 5 of the draft Law provides that  a  bank  holding  a  deposit  of  money  and  a  securities  intermediary  having  an obligation  to  transfer  securities  or  cash  can  take  a  security  interest  in  its  own obligation. But liens and other security interests created by operation of law fall outside the definition and are not regulated by the draft Law.
3. The concept of a floating charge, by which a debtor company is by the terms of the security agreement given power to dispose of its assets in the ordinary course of business free from the security interest, is not known to Jersey law, nor is it recognised as a distinct form of security under the draft Law. However, there is nothing to preclude a company, whether or not registered in Jersey, from creating a floating charge over property situated in a jurisdiction whose law provides for it. So a Jersey or foreign company could grant under, say, English law a floating charge over property situated in England. But once the property moves to Jersey the security interest attracts all the incidents of Jersey law (see paragraph 17 below).

"Intangible movable property"

4. Intangible  movable  property  means  movable  property  other  than  goods, documents of title to goods or money in the sense of currency (Article 1). Though physical money is excluded, other forms of cash, namely cheques, drafts and deposit accounts, are within the draft Law. Leases of land for not more than 9 years, though constituting movable property within this definition, are expressly excluded from the draft Law by Article 9.

5. Intangible  movables  are  of  two  kinds.  The  first  consists  of  documentary intangibles, that is, rights to money or securities embodied in an instrument which can be transferred by delivery of the instrument with any necessary endorsement and can thus  be  the  subject  of  a  possessory  security  interest.  Into  this  first  category  fall negotiable instruments and negotiable investment securities, such as bearer bonds and bearer shares. The second kind comprises all other intangibles ("pure intangibles") so far as not excluded by Article 8 or Article 9. Into this second category fall all types of financial  asset  and  financial  instrument,  as  well  as policies  of  insurance,  deposit accounts, receivables arising from the supply of goods and services, debts repayable under  loan  agreements  or  promissory  notes  and  other  contract  rights,  including contractual rights to the delivery of goods, but not the goods themselves.
6. For example, the draft Law covers a security interest in the rights of an investor under an unallocated gold or other precious metals account, where there has been no appropriation of the commodity to the contract and the investor has merely a contractual right to delivery, but a security interest in precious metals appropriated under an allocated account is an interest in tangible movables and is outside the scope of the draft Law. A financial instrument is a share, bond or other financial instrument that is normally dealt in and gives the right to acquire any such instrument, and for the purposes of the draft Law denotes a share, bond, etc., held directly from the issuer rather than through a securities intermediary. "Financial asset" includes, but has a wider meaning than, "financial instrument" and extends to any property held in a securities or commodities account with an intermediary and to commodities futures and  options  contracts.  It  should  be  noted  that  certificated  registered  securities, insurance policies and other written contracts, though evidenced by a document, are not documentary intangibles, because the document does not embody the right so as to enable it to be transferred by manual delivery.

"Proceeds"

7. The draft Law covers not only original collateral but proceeds (Articles 6, 25(b)). Proceeds are defined as any identifiable or traceable property deriving directly or indirectly from a dealing with collateral or its proceeds. This includes anything acquired in exchange for or in redemption of intangible movable property, including proceeds of sale, insurance proceeds and proceeds of proceeds. However, the draft Law  applies  only  to  those  proceeds  that  are:  (a) intangible  movable  property,

(b) derived directly or indirectly from intangible property, and (c) not excluded by Article 8. So if shares given in security are sold by the debtor against payment of a banker's draft, the security interest attaches to the draft and any resulting proceeds. If the  proceeds  are  then  utilised  to  buy  a  car  which  is  later  sold,  giving  rise  to  a receivable, then although the draft Law does not apply to the security interest in the car it does apply to the later security interest in the proceeds of sale. Excluded are interest, dividends or other income, which are normally considered to belong to the debtor. It is, however, open to the parties to give security over these items as original collateral.

Classification of collateral

8. As  pointed  out  above,  the  primary  classification  divides  collateral  into documentary  intangibles  and  pure  intangibles.  The  reason  for  this  is  that  only documentary intangibles lend themselves to attachment and perfection by possession.

9. Documentary intangibles are themselves of two kinds, negotiable instruments and negotiable investment securities. Broadly the same rules apply to each. However, negotiable instruments remain governed by negotiable instruments law, so that nothing in the draft Law affects the rights of a holder in due course (Article 43).
10. Pure intangibles are divided by the draft Law into 3 broad categories:

1. Intangibles governed by the rules on control

Article 3 deals with the concept of control, discussed below in paragraphs 21 et seq. Three classes of intangible are susceptible to perfection by control, which carries with it  priority.  First,  there  are  deposit  accounts,  in  which  a  security  interest  can  be perfected not only by registration but by control (Article 3(3)), carrying with it priority (Article 30). Then there are securities accounts held with an intermediary, which are treated by the draft Law in the same way as it treats deposit accounts. The method of perfection by control is in essence the same (Article 3(3), (4)), as are the priority rules (Article 30). Subject to the agreement between the parties, a security interest in a securities account covers all securities from time to time credited to that account. Thirdly, there are non-negotiable investment securities, which are subject to special rules of control varying according to whether they are registered certificated securities or uncertificated securities held in a settlement system (Article 3(5), (6)).

2. Receivables

The primary reason for isolating receivables as a distinct category is that the perfection and priority rules of the draft Law govern not merely security interests in receivables but also outright assignments of them, e.g. by way of sale under factoring, invoice discounting or securitisation arrangements. The definition of "receivable" in Article 1 is restricted to monetary obligations arising from the supply of goods or services (other than insurance services) and the supply of energy. Receivables therefore do not include loans or loan participation agreements, and the definition also specifically excludes deposit accounts and rights to payment embodied in an instrument or an investment security. There are 3 reasons for treating receivables as so defined as a distinct category. First, they are not susceptible to control in the sense used in Article 3 of the draft Law and therefore must be treated separately from deposit accounts, securities  accounts  and  investment  securities.  Secondly,  for  the  reasons  given  in paragraph 49, the perfection and priority rules of the draft Law extend to the sale or other  outright  disposition  of  receivables,  as  typified  by  factoring  and  invoice discounting arrangements, but these reasons are not applicable to the sale of debts arising from loans. Thirdly, in order to maintain the free movement of receivables in the stream of trade Article 45 overrides contractual prohibitions against assignment, but the same policy reasons do not apply to no-assignment clauses in loan agreements or to the securitisation of loan obligations.

3. Other intangibles

This  category  embraces  all  other  pure  intangibles  not  excluded  by  Article 8  or Article 9. Into this residual category fall rights to repayment under loan agreements and  other  contract  rights.  Security  interests  in  these  can  be  perfected  only  by registration and fall outside Part 7 dealing with assignments of receivables.

Territorial scope

11. The draft Law will apply if: (a) the debtor is a company registered in Jersey or a  Jersey  individual,  wherever  the  property  given  in  security  is  situated,  or

(b) intangible movable property situated in Jersey and given in security by a company, whether or not registered in Jersey, or by an individual, whether or not a Jersey individual (Article 4(1)).

Impact on security interest created under a foreign law

12. The starting point is that, despite Article 4(1), the draft Law does not affect any  right  acquired  in  relation  to  intangible  property  under  the  law  of  a  foreign jurisdiction while that property is situated within that jurisdiction (Article 4(2)). This reflects the widely adopted principle that a dealing in movable property is governed by the law of its situation (lex situs, lex rei sitae) at the time of the dealing. Moreover, if the security interest was not merely created but perfected under the foreign law while the property was situated in the foreign jurisdiction and the property is later moved to Jersey  it  enjoys  temporary  automatic  perfection  for  30 days  (Article 11(2)),  after which it will become unperfected if not perfected under the draft Law. However, if the security interest created under the foreign law was not perfected under that law then on removal of the property to Jersey the security interest does not enjoy any period of automatic perfection and becomes an unperfected interest immediately on removal to Jersey unless and until perfected under the draft Law. In either case an unperfected security interest is vulnerable to subordination to a subsequent security interest and to invalidity  against  a  subsequent  purchaser  or  the  Viscount  or  a  liquidator  or administrator  (see  paragraph 32).  A  Jersey  debtor  giving  security  over  property situated outside Jersey is deemed to have had capacity to give it under the law of Jersey (Article 103(2)). This re-enacts Article 12 of the Security Interests (Jersey) Law 1983.
13. Once the property in respect of which rights have been created under foreign law moves to Jersey it attracts all the incidents of the draft Law, so that, for example, as previously stated, a foreign security interest created as a floating charge becomes re-characterised as a fixed security interest under the draft Law. This is made clear by Article 15, which provides that a security interest which is expressed as, or but for this draft Law would be, in the nature of a floating charge, attaches to each item of collateral in accordance with the rules for attachment laid down in the draft Law, and on attachment takes effect as a fixed security. In other words, the fact that a security interest is expressed as a floating charge does not by itself postpone attachment in the absence of agreement to that effect. Despite this the debtor is entitled to deal in the collateral from time to time if that is in accordance with the security agreement.

Exclusions

14. Under Article 9 various types of transaction are excluded because they:

• relate directly or indirectly to immovables, e.g. interests in land, rental and mortgage payments;

• do not in law constitute security, e.g. rights of set-off, assignments for the  general  benefit  of  creditors,  sale  and  repurchase  ("repo") agreements, stock lending;

• do not serve a commercial financing purpose, e.g. an assignment of a single account in or towards discharge of a pre-existing indebtedness, an assignment of a right to damages in tort;

• envisage  performance  by  the  assignee,  as  on  assignment  of  an unearned  right  to  payment  or  an  assignment  as  part  of  sale  of  a business;

• do  not  deprive  the  assignor  of  beneficial  ownership,  as  on  an assignment for collection;

• involve  complex  issues  which  require  in-depth  examination, e.g. security interests in software and other intellectual property;

• are excluded for policy reasons, e.g. the assignment of a claim to wages;

• are adequately covered by an existing registration, as in the case of supporting  obligations  (rights  to  payment  under  a  guarantee  or indemnity); or

• are governed by other law and another registration system, e.g. a mortgage of a ship or aircraft or share therein.

Other interests may be excluded by Order (Article 8(d)).

15. For  the  avoidance  of  doubt,  Article 10  of  the  draft  Law  provides  that contractual subordination agreements do not give rise to security interests, nor do turnover subordination trusts unless expressed to  create or provide for a  security interest.

Aspects of security

16. The draft Law deals with the attachment, perfection and priority of security interests,  together  with  enforcement  rights  and  transfers  of security  interests. Attachment denotes the creation of a security interest so as to be enforceable against a debtor.  Perfection  denotes  the  further  step  required  to  give  the  security  interest protection  against  third  parties,  including  a  trustee  or  liquidator.  Typically  this involves an act which gives third parties notice of the existence of the interest, such as possession (in the case of a documentary intangible such as a negotiable security) or registration in a public register or which gives the secured creditor control over the intangible. Perfection does not guarantee priority, which is determined by priority rules.

The concept of control

17. An important feature of the draft Law is the concept of control of collateral. This provides in relation to pure intangibles the equivalent of what is provided by possession as regards documentary intangibles. Control is an alternative to possession as  an  ingredient  of  attachment  (Article 18(1))  and  as  a  method  of  perfection (Article 23(2)), and in relation to investment securities and deposit accounts control

confers priority as against a secured party who does not have control (Article 30(2)). In essence it consists of an arrangement by which the secured party is able to have recourse to the collateral without further assent or assistance from the debtor.

When a secured party has control

2.18  Article 3 sets out the conditions in which a secured party has control. Since a security interest in documentary intangibles attaches and is perfected by possession, Article 3 is confined to pure intangibles, and more specifically to such of these as are susceptible  to  control,  namely  deposit  accounts,  securities  accounts  and  non- negotiable investment securities. The concept of control therefore has no application to receivables or other ordinary debts or contract  rights, for the reason stated in paragraph 23.  What  constitutes  control  of  collateral  within  the  scope  of  Article 3 depends on the character of the intangible in question, but in every case control depends  upon  the  relevant  security  agreement  being  in  writing  (Article 3(1)), "writing" being defined by Article 1 as modified in relation to control by Article 3(2).

Deposit account

19. Article 3 provides 4 methods of obtaining control of a deposit account. The first is where this is transferred into the name of the secured party with the written agreement of the debtor and the bank or other institution with which the deposit is held. The second is where the 3 parties agree that the bank or other institution will comply with the instructions of the secured party directing the disposition of funds in the account. This suffices to give control, even if the debtor retains the right to direct the disposition of funds in the absence of a contrary direction from the secured party. The  secured  party's  ability  to  intervene  in  the  operation  of  the  account  suffices, whether or not it does so. The third method is by an assignment in writing by way of security signed by or on behalf of the debtor, and written notice of the assignment to the bank or other institution with which the deposit account is held. The reason why this method of control is available in relation to deposit accounts, but not in relation to receivables or ordinary debts, is that the account debtor, being a financial institution, and as such likely to be regulated, can be expected to comply with the notice of assignment.  The  fourth  method  is  where  the  secured  party  is  the  bank  or  other institution with which the deposit account is held, for in this case it is able to prevent or restrict the withdrawal of funds from the account.

Securities account with an intermediary

20. Where the collateral consists of a securities account held with an intermediary, the methods of control are the same as for a deposit account except that control by assignment and notice of assignment is not an available method of control.

Certificated registered investment security

2.21  A secured party has control of a certificated registered investment security if registered as holder with the issuer or in possession of the certificate and a written form of transfer signed by the debtor in favour of the secured party or in blank (as previously  mentioned,  if  the  investment  security  is  a  negotiable  security  mere possession of the certificate suffices without any transfer instrument).

Uncertificated registered investment security

2.22.  Where the investment security is not represented by a certificate and is held in a settlement system, such as the CREST system operated by Euroclear U.K. & Ireland, any one of 4 methods of control is available. The first is where the operator of the system, on the instructions of the registered holder of the investment security, opens a sub-account in the holder's name but with a power of attorney to the secured party over the investment security. The second is where on the written instructions of the registered holder, the operator is permitted to effect a transfer of title only on the instructions of the secured party. The third is by entry of the secured party on the register maintained by or on behalf of the operator of the system (this is for cases where such a register, rather than that of the issuer itself, is the primary record of entitlement, as in the CREST system). The fourth is by entry of the secured party in the register maintained by or on behalf of the issuer.

3. ATTACHMENT AND PERFECTION Attachment of security interest

1. Article 18 deals with the elements necessary for the attachment of a security interest – in other words, the formalities for the creation of the security interest so as to make it enforceable against the debtor. There are 3 requirements: the secured party must have furnished valuable consideration, which includes an antecedent debt or liability; the debtor must have rights in the collateral, though not necessarily full ownership;  and  either  the  secured  party  must  have  possession  or  control  of  the collateral or the security agreement must be in writing signed by or on behalf of the debtor  and  contain  a  description  of  the collateral  sufficient  to  identify  it (Article 18(1)(c)(ii)).
2. Where the secured party has possession there is no need for the security agreement to be in writing. Where the secured party has control then the agreement need  not  be  signed,  but  control  presupposes  that  the  agreement  is  in  writing (Article 3(1)).
3. If  the  secured  creditor  does  not  have  either  possession  or  control  it  is necessary  that  the  debtor  shall  have  signed  a  security  agreement  containing  a description of the collateral sufficient to identify it. The identification requirements, set out in Article 18(2), are very flexible; for example, they enable security to be taken over all or any category of the debtor's present and future collateral. Moreover, a security interest in future collateral attaches when the collateral is acquired, without the need for a new act of transfer (see Article 19(2), (3)). It is not necessary that the future collateral be identified at the time of the security agreement; it suffices that after acquisition it is identifiable as falling within the scope of the security agreement. So a security interest over all the debtor's after-acquired investment property would be a sufficient description.
4. There is an automatic attachment in favour of a securities intermediary who credits its customer's securities account with securities bought for the customer by the intermediary to secure the price advanced by the intermediary on the customer's behalf. Such a security interest is given in order to provide the intermediary with an assurance that funds expended on its customer's behalf will be able to be recouped

from the purchased securities if the customer fails to reimburse the intermediary. Similarly, the securities intermediary in such a case has control of the collateral (see paragraphs 23–24, and its attached interest is automatically perfected at the same time ((see paragraph 33).

5. A  security  interest  attaches  in  respect  of  a  supporting  obligation  when  it attaches  to  the  collateral  securing  the  principal  obligation  (Article 21).  So  if receivables for the payment of which a guarantee has been given, are assigned by way of security, then when the security interest attaches to the receivables it automatically attaches to the rights conferred by the guarantee.

Perfection of the security interest

6. The purpose of perfection is, first, to protect the secured creditor's priority against subsequent secured creditors and an outright acquirer for value and, secondly, to avoid invalidation on the debtor's insolvency. An unperfected security interest is subordinate to a subsequent perfected security interest; a person acquiring for value takes free of an unperfected security interest unless a party to the transaction creating or providing for it; and a security interest not perfected before the commencement of the  debtor's  bankruptcy  is  void  against  the  Viscount  or  a  liquidator,  or  an administrator  appointed  by  the  court  (Article 57(1)).  Similar  rules  apply  to  an unperfected absolute assignment of a receivable (Articles 29(1)(b), (e) and (h) and 58(2)). See further paragraphs 49–51.
7. The first requirement for perfection is that the security interest has attached. The mode of perfection depends on the nature of the collateral. A security interest in any kind of collateral can be perfected by registration of a financing statement (see paragraph 60 as to financing statements) unless the security interest is in investment securities  and has  attached  automatically  under  Article 18,  in  which  case  it  is automatically perfected (Article 23(2)). A security interest in a documentary intangible may also be perfected by possession and a security interest in a deposit account, securities account or registered investment security may also be perfected by control. "Securities account" covers any account with an intermediary to which financial assets may be credited or debited, including a commodity futures account. A security interest in, or an assignment of, receivables requires to be perfected by registration. Notice to the debtor does not suffice.
8. A  security  interest  in  proceeds  of  collateral  is  a  continuously  perfected security interest if: (a) the category of proceeds is described (e.g. "proceeds of the debtor's receivables"); (b) the proceeds are of a kind falling within the description of the original collateral, as where the original collateral consists of investment securities which are sold and the proceeds reinvested in other securities; or (c) the proceeds consist of a payment made in total or partial discharge or redemption of collateral, or an insurance or other payment for the loss or reduction in value of the collateral or proceeds.
9. Where a security interest perfected in one way is later perfected in another way without an interval, the security interest is continuously perfected (Article 24). The steps to perfection can be taken in any order, so that an intending secured creditor can register before the security agreement has been concluded and other ingredients of perfection fulfilled, and perfection will go back to the time of registration. Security interests in proceeds and in negotiable instruments and negotiable securities returned

to the debtor enjoy a period of temporary automatic perfection, on the expiry of which they need to perfected in the ordinary way.

10. Article 11  provides  for  the  temporary  automatic  perfection  of  a  security interest created and perfected under the law of another jurisdiction over collateral, then situated in that jurisdiction but subsequently removed to Jersey. If the security interest had not been perfected under the foreign law it may be perfected under the draft Law.

4. PRIORITIES Basic priority rules

1. The priority rules in Part 4 apply alike to original collateral and proceeds. Article 29  lays  down  the  basic  priority  rules.  These  are  that  a  perfected  security interest has priority over an unperfected security interest; where both interests are unperfected priority is determined by the order of attachment; and as between two or more perfected security interests, priority goes to the security interest in relation to which any of the following events first occurred:

• a financing statement was registered;

• the secured party took possession or control of the collateral; or

• the security interest was temporarily perfected under the draft Law.

2. It  should  be  noted  that,  as  between  two  perfected  interests,  the  order  of perfection is not determinative. If, for example, a financing statement is registered in advance of the conclusion of the security agreement, and the debtor then grants a security interest to another party which is perfected first, then although that interest initially has priority, it will be subordinated to the first interest once this has become perfected, for the priority of that interest goes back to the time of registration of the financing statement. This enables an intending financier to protect its position by registration in advance of entry into the security agreement. The basic idea is that a party on notice of a prospective security interest and nevertheless advancing funds on security, takes its chance of subordination if the prospective interest later becomes an actual interest. Thus the filing of a financing statement by an intending financier alerts a future secured creditor to the fact that, while it may be the first to perfect its interest, its initial priority will be displaced if the earlier prospective interest later becomes an actual security interest.

Special priority rules

3. Under  the  special  priority  rules  embodied  in  Article 30,  the  priority  of competing  security  interests  in  investment  securities  and  deposit  accounts  is determined  by possession  or  control  and,  as  between  two  interests  perfected  by control, by the order of control. Possession, of course, is restricted to negotiable investment securities. The special priority rules do not themselves cover negotiable instruments held by way of security; instead, protection is given under negotiable instruments law to a holder in due course (Article 43), which includes a pledgee who satisfies the requirements of such a holder. Conflicting security interests granted by an

intermediary  where  neither  party  has  control  rank  equally.  In  all  other  cases  the general rules apply.

4. A special priority is given to purchase-money security interests and certain other interests. A purchase-money security interest is, in essence, a security interest taken to secure an advance of the purchase price of the collateral to the debtor. The reason for giving this priority is to prevent the first financier from using its security interest over future property to obtain a monopoly over the debtor's financing, and a windfall addition to its security of an asset purchased with the second financier's money.  However,  the  purchase-money  security  interest  must  be  perfected  within 30 days after attachment (Article 34).

Subordination agreements; transfers

5. Priorities may be varied by a subordination agreement between the holders of the  competing  interests  (Article 32)  but  the  senior  creditor  should  register  the subordination  (see  paragraph 61).  Transfer  of  a  security  interest  perfected  by registration may be registered by filing a financing change statement (Article 77(1)). Where the transferred security interest was not perfected by registration, a financing statement can be filed showing the transferee as the secured party (Article 78(1)). Registration  of  a  transfer,  or  showing  the  transferee  as the  secured  party,  is  not necessary to preserve the priority of the security interest, because a security interest that is transferred has the same priority as it had before transfer (Article 31).
6. Similar rules apply to a further assignment by the assignee of a receivable (Articles 77(2), 78(2)). In general, registration of a transfer under Articles 77 and 78 is permissive, its main purpose being to ensure that any notices which the draft Law requires to be given to the secured party are given to the assignee. But under other provisions a transfer of a debt by way of security must be perfected by registration, whether or not the transferred debt or intangible is itself secured (Article 23(3)), so that failure to register will result in subordination of the transferee's claim to the debt (and in consequence to any security interest transferred with the debt) to another transferee  who  registers  first  (Article 29(1)(a)).  The  same  applies  to  the  outright further assignment of a receivable by the original assignee (Articles 23(4), 29(1)(b)). By contrast there is no provision for registration of an outright assignment or further assignment of a debt or indeed of any intangible other than a receivable.

Future advances

7. A security interest has the same priority as regards all advances, whether existing or future advances, whether made pursuant to a contractual obligation or voluntarily (Article 33(3)) and whether made with or without notice of a subsequent security interest.

5. TRANSFER OF DEBTOR'S INTEREST IN COLLATERAL

5.1.  The debtor may transfer its interest in the collateral despite a provision in the agreement prohibiting transfer, and any perfected security interest subject to which the collateral is transferred has priority over any subsequent security interest granted by the transferee in the same collateral except where the transfer was with the secured

party's consent or the secured party had or later acquires knowledge of it, in which case that priority is subject to qualifications (Articles 35–40).

6. PERSONS TAKING FREE OF SECURITY INTEREST Freedom from unperfected security interest

1. The priority rules previously discussed deal with competing security interests. Part 6 of the draft Law concerns parties whose interests not merely rank in priority to an earlier security interest but extinguish it altogether. One who acquires the collateral for  value  takes  free  of  an  unperfected  security  interest  unless  it  was  created  or provided for by a transaction to which the person acquiring the collateral was a party (Article 41).

Protection of creditor receiving payment

2. A creditor receiving payment through a debtor-initiated payment takes free of any security interest, perfected or unperfected, in the funds paid, any intangible that was the source of payment and any negotiable instrument used to effect the payment (Article 42). The purpose of this rule is to ensure the efficacy of payments.

Preservation of rights of holder in due course

3. The rights of a holder in due course of a negotiable instrument are preserved (Article 43). Under negotiable instruments law such a holder takes free from any defect in the title of his transferor.

Protection of purchaser of investment security

4. The purchaser of an investment security takes free of a perfected security interest if taking control of the investment security and acquiring it without knowledge of the security interest. Where the purchaser acquires the investment security under a transaction  entered  into  in  the  ordinary  course  of  the  transferor's  business,  the purchaser  takes  free  of  the  interest  even  if  having  knowledge  of  it,  unless  the purchaser  also  knew  that  the  transfer  was  in  breach  of  the  security  agreement (Article 44). The rationale of this rule is that a purchaser in the ordinary course of the seller's  business  should  be  entitled  to  assume  that  the  disposition  to  him  was authorised.

7. ASSIGNMENTS OF RECEIVABLES Application of draft Law to absolute assignments

1. Whilst most of the provisions of the draft Law deal with the grant of security interests,  including  the  assignment  of  receivables  by  way  of  security,  the  rules governing perfection and priority also apply to the absolute assignment of receivables. One  reason  for  including  such  assignments  is  that  the  common  use  of  recourse provisions  and  warranties  in  receivables  financing  agreements,  such  as  factoring agreements, produces effects very similar to those of secured transactions. Secondly, the existing rule of law by which priority among competing assignees goes to the first

to give notice to the account debtor is cumbersome and, indeed, incompatible with the dominance of non-notification finance, where the purchaser of receivables does not wish to assume the burden of maintaining ledgers or the seller does not want to have its relationships with its customers disturbed or to pay the assignee for assuming the ledgering function. Thirdly, the existing priority rule presupposes that an intending assignee will make enquiry of the account debtor to see if it has received any prior notice of assignment, which may be feasible for the purchaser of a few specific receivables  but  is  impracticable  in  the  case  of  large-scale  continuous  receivables financing.

2. Registration provides a simple method of perfecting an outright assignment of receivables,  and  a  single  registration  can  cover  not  only  existing  but  future assignments. Through registration the assignee can secure priority over subsequently registered  assignments  and  unregistered  assignments.  Receivables  are  narrowly defined and do not, for example, extend to debts repayable under loan agreements, so that an outright assignment of loan debts, or indeed of any intangible falling outside the definition of a receivable, is not covered by the draft Law at all.
3. Only those provisions relating to perfection and priority apply to absolute assignments  of  receivables.  Unlike  a  secured  creditor  a  purchaser  of  accounts  is entitled to collect and retain for its own benefit the full amount of the accounts regardless of the sum paid for their purchase, so that the provisions of the draft Law as to surplus and its distribution do not apply.

Overriding of restrictions on assignment

4. Part 7 of the draft Law deals with the assignment of receivables, Articles 45 and 47 of which (but not Article 46) apply not only to outright assignments but to assignments by way of security, which would ordinarily fall outside the definition of assignment. The effect of Article 45 is that where a contract contains a provision prohibiting  or  restricting  assignment  such  a  provision  is  ineffective  against  the assignee, so that the assignment is valid and simply exposes the assignor to a claim for damages for breach of contract. The purpose of this provision is to remove what would otherwise  be  a  serious  impediment  to receivables  financing.  Where  there  is  a continuous  flow  of  receivables  from  assignor  to  assignee,  as  under  a  factoring agreement, it is impracticable for the assignee to check the individual contracts to see if these prohibit or restrict assignment. Moreover, the effect of a prohibition against assignment is that the supplier is deprived of the opportunity to obtain immediate funds and transfer the risk of non-payment. Prohibitions against assignment also create potentially serious obstacles to securitisation. So Article 45 reflects a policy embodied in  Article 9–406(d)  of  the  American  Uniform  Commercial  Code  and  in  several international conventions that freedom of commerce should be given priority over freedom of contract.

The account debtor's duty to pay

5. Article 46, which is concerned with the account debtor's duty to pay the assignee, is confined to absolute assignments, where in principle the assignee has the right  to  collect  from  the  account  debtor  immediately  the  assigned  accounts  have become due. The assignee's right to collect accounts assigned by way of security is typically exercisable only on default by the assignor-debtor and is thus controlled by

the  default  provisions  relating  to  security  interests  generally  and  contained  in Article 49.

6. The account debtor is obliged to pay the assignee only after receipt of notice in writing by or with the authority of the assignor identifying the account assigned and requiring the account debtor to pay the assignee. It is not sufficient that the notice informs the account debtor of the assignment, for he might not realise that the effect is to require him to pay the assignee instead of the assignor. Hence the provision that the notice  require  the  account  debtor  to pay  the  assignee.  Where  the  account  debtor acquires knowledge of the assignment from another source or otherwise than by notice in writing it need not pay the assignee until receipt of the requisite notice but will not obtain a good discharge if paying the assignor, so that if the assignor fails to transfer the payment to the assignee the account debtor would be liable to make a second payment, to the assignee, on receipt of a written notice conforming to Article 46(1).

Defences and rights of set-off

7. Under Article 47, the account debtor is entitled to assert against the assignee (including an assignee by way of security) any defences he would have had against the assignor, whether arising before or after receipt of notice of assignment, and is also entitled to assert against the assignee rights of set-off in respect of cross-claims arising before receipt of the notice of assignment or closely connected to the claim. But the account debtor cannot set off against the assignee's claim a cross-claim against the assignor which is not closely connected to the claim and does not arise until after the account debtor's receipt of the notice of assignment.
   8. ENFORCEMENT OF SECURITY INTERESTS Default remedies

1. Under the 1983 Act, the creditor's only remedy for default is sale. Part 8 of the draft Law provides a range of default remedies, "default" covering not only failure to pay or perform under the security agreement but the occurrence of an event which by the terms of the security agreement gives the secured party the right to enforce the security (Article 1). The primary remedies are possession or control of the collateral; sale of the  collateral; in  the case of  collateral of  a kind reducible to  money, its application to satisfaction of the debt; and the taking of the collateral in satisfaction of the debt by the creditor or, if there is more than one, by the senior creditor. Prior notice to interested parties is required, and if any of them whose interest would be adversely affected objects the creditor cannot take the collateral in satisfaction of the debt but must sell it (Article 61(1)).
2. In addition to these primary remedies, Article 64 contains a set of provisions to facilitate the realization of collateral. Where the collateral is a receivable a secured party may instruct the account debtor to make payments to the secured party instead of to the debtor. Where the collateral is a deposit account the secured party may apply the balance in the account towards satisfaction of any debt or other obligation to the secured party or instruct the bank to pay that balance for that purpose. The secured party may in any event exercise any rights of the debtor in relation to the collateral, for example, the exercise of voting rights associated with shares given in security. Finally, the court is given extensive powers to make orders to facilitate realization of the

collateral by the secured party, including an order for delivery of the collateral to the secured party or transfer into the secured party's name.

3. Any sale must be at a fair market value and on commercially reasonable terms and 14 days' prior notice must be given to interested parties. Any surplus resulting from sale must be applied in satisfaction of the claims of the holders of other interests that have been registered or of which notice has been given to the creditor, and any remaining amount must be paid to the debtor. The debtor can redeem the collateral at any time before sale or the taking of the collateral in satisfaction and also has a qualified right to reinstate the security agreement.

9. REGISTRATION The registration system

1. The registration system will be wholly automated, so that registrations may be effected, searches made and search certificates issued on-line without the need for human  intervention  at  the  Registry  end  (Article 89).  Experience  with  registration systems in the United States, Canada and New Zealand shows that a highly efficient system can be operated at low cost.

Notice-filing

2. The  registration  system  will  be  based  on  the  concept  of  notice-filing  as opposed to transaction-filing. Notice-filing has three advantages:

1. It does not involve the filing of a copy of the security agreement, which takes up Registry space, makes it difficult to record the precise time of registration and  in  any event  does  not convey  information  as  to  the  debtor's  current indebtedness. Instead, the creditor or intending creditor registers a financing statement stating that it has acquired or intends to acquire a security interest in an  identified  item  of  collateral  or  a  given  description  of  collateral.  The function of the financing statement is to give notice to third parties of basic information, such as the existence of the security agreement, the identity of the parties and a description of the items or classes of collateral. On-line registration enables the system to record the precise time registration takes effect. A third party wishing to have more information, for example, the amount outstanding under the security agreement, should seek this from the secured  creditor  or  the  debtor.  If  the  security  interest  is  not  over  all  the intangible movable property, or all the movable property, of the debtor, the secured party can be required by the debtor, a judgment creditor or another secured party to provide a copy of the security agreement, a statement in writing of the indebtedness and an itemised list of intangible movable property indicating  which  items  are  collateral  under  the  security  agreement (Article 95(1)).
2. A financing statement can be registered in advance of the giving of value or the making of the security agreement, and when all the elements of perfection are in place priority goes back to the date of registration of the financing statement.

3. It is not necessary to make a separate registration for each transaction. The financing statement can cover all transactions, present and future, relating to that item or description of collateral.

Assignments, transfers and subordinations

3. Assignments of receivables, whether absolute or by way of security, will also fall within the registration system, as will transfers of security interests and further assignments  of  receivables.  Subordination  arrangements  may  also  be  registered; indeed, it is prudent to do so, because otherwise a transferee of the subordinated security interest will not be bound by the subordination and can treat the transferred interest as continuing to be the senior interest (Article 32(3)).

Other aspects of registration

4. The contents of the financing statement are such as may be prescribed by the Minister by Order or in the absence of any such Order the data set out in Article 70 of the  draft  Law.  A  discharge  or  amendment  of  a  registration  can  be  recorded  by registering  a  financing  change  statement  (Article 82)  and  the  debtor  can  make  a written demand for the secured party to register a financing statement where all of the secured obligations have been performed or in any of the other cases mentioned in Article 83. The public will be entitled to make searches of the register and obtain written reports setting out the information in the register relevant to those searches (Article 93). A printed search result purporting to be issued by or under the authority of the registrar will be admissible in evidence and constitutes proof of the registration and of the date, time and order of registration, in the absence of evidence to the contrary (Article 94).

Errors

5. Under Article 74, omissions, errors or irregularities in a registration will not invalidate it unless the omission, error or irregularity is seriously misleading.

Duration of registration

6. Registration lasts for the period, if any, specified in the financing statement or until discharge or removal of the registration or the expiry of 10 years beginning with the  date  of  registration,  whichever  first  occurs.  But  registration  may  be  renewed (Articles 75–76).

Registration not constructive notice

7. Article 12  provides  that  registration of  a  financing  statement  or  financing change  statement  is  not  to  constitute  constructive  notice  of  the existence  of  the statement  or  its  contents.  This  rule  is  necessary  in  order  to  prevent  a  creditor perfecting its security interest by control from being affected by a registration, given that  perfection  by  control  would  give  priority  over  a  security  interest  previously perfected by registration. To protect the integrity of the registration system, Article 12 also provides that a priority a creditor acquires by perfection is not to be affected by the creditor's actual knowledge of a prior (unperfected) interest. This avoids factual disputes as to whether a party did or did not have notice and enables a party to have confidence in the effectiveness of his registration.

10. EFFECT OF DEBTOR'S BANKRUPTCY Protection of perfected security interest

1. In general, the debtor's bankruptcy invalidates only a security interest, or an assignment  of  a  receivable,  remaining  unperfected  at  the  time  of  the  debtor's bankruptcy (Article 58). In general a perfected security interest or assignment is not affected by the debtor's bankruptcy. However, even a perfected security interest or assignment may be rendered void under the provisions of the Bankruptcy (Désastre) (Jersey)  Law  1990  as  a  transaction  at  an  undervalue  or  a  preference.  Moreover, Article 14(1) of that Law, dealing with security interests in movable property in which a bankrupt debtor and others hold an undivided share, remains in force. Nothing else in that Law affects the operation of the draft Law (Article 57(1)).
2. The  repeal  of  the  Security  Interests  (Jersey)  Law  1983  means  that  the enforcement of a security interest in movable property en désastre, and the application of the proceeds of any realisation of that property by the secured party cease to be controlled by Article 6 of the 1983 Law and instead become governed by Part 8 of the draft Law. The effect is that instead of application to the Court by the Viscount for a vesting order and order for sale, any realisation will be effected by the secured party and the proceeds distributed as provided by Part 8, though the Court may on the application of the secured party make any of the orders specified in Article 64(3) for the purpose of facilitating realisation of the collateral.

11. COMMENCEMENT ANDTRANSITIONAL PROVISIONS Commencement

1. Only a few selected provisions of the draft Law, in particular the provisions of Part 9  relating  to  registration,  come  into  force  on  a  day  to  be  appointed (Article 110(2)). The remaining provisions, including those relating to the attachment, perfection and priority of security interests and assignments of receivables, come into force  on  the  day  falling  6 months  after  the  day  appointed  under  Article 110(2) (Article 110(3)). The period between the 2 days is the transitional period (Schedule 2, paragraph 1).
2. During the transitional period, a security interest may be created only under the 1983 Law and will be governed by that Law (Schedule 2, paragraph 2(a), (b)). However, a security interest effective under the 1983 Law may be registered under Part 9  of  the  draft  Law  at  any  time  during  the  transitional  period  (Schedule 2, paragraph 2(c)).
3. On expiry of the transitional period, an interest created and effective under the 1983 Law (whether before or during the transitional period) becomes governed by the draft Law as if created under the draft Law (Schedule 2, paragraph 3(1)). Where such a  security  interest  is  created  by  possession or  control  or  is  registered  during  the transitional  period  (all  these  being  means  of  perfection  under  the  draft  Law),  it becomes perfected under the draft Law on and from the expiry of the transitional period (Schedule 2, paragraph 3(2)). However, if 2 or more security interests are taken

in  the  same  collateral,  then  without  affecting  the operation  of  paragraph 3(2)  the interests are to be taken as perfected in the order in which they were created under the 1983 Law (Schedule 2, paragraph 3(3)). So although in general a security interest cannot be treated as perfected under the draft Law until the end of the transitional period, in the case of competing interests perfection will be deemed to have occurred in  the  order  of  creation  and  priority  given  accordingly.  The  effect  is  to  leave undisturbed the priority that existed before the end of the transitional period.

4. The provision dealing with outright assignments of receivables (Schedule 2, paragraph 4) is more limited. It lays down the general rule that the draft Law does not apply to such assignments effected before the expiry of the transitional period, but permits registration during or after the transitional period (registration being the only mode of perfection for such assignments). The assignment is then considered to be registered on expiry of the transitional period or the date of registration if later, and from then on the draft Law applies to it. However, paragraph 4 of Schedule 2 does not deal with the order of perfection of competing assignments made before expiry of the transitional period.

DRAFT SECURITY INTERESTS (JERSEY) LAW 200-

Arrangement

Article

PART 1  29

INTERPRETATION  29

1 Definitions.....................................................................................................29 2 Meaning of "debtor"......................................................................................34 3 Meaning of "control" ....................................................................................34

PART 2  36

SCOPE OF LAW  36

4 Application of Law .......................................................................................36 5 Security interests in own obligation..............................................................36 6 Security interest in proceeds .........................................................................36 7 Secured party with title to collateral .............................................................36 8 Interests excluded..........................................................................................37 9 Transactions excluded...................................................................................37

10. Subordination agreements.............................................................................38
11. Perfection under this Law if collateral moved to Jersey ...............................38
12. Notice and knowledge...................................................................................38
13. Law to bind the Crown and States ................................................................39

PART 3  39

ATTACHMENT AND PERFECTION  39

14. Security agreement........................................................................................39
15. Floating charge..............................................................................................40
16. Description of proceeds not required for enforceability against third parties............................................................................................................40
17. Attachment....................................................................................................40
18. Attachment: general rule...............................................................................40
19. After-acquired property.................................................................................41
20. Investment securities: automatic attachment in favour of intermediary .......41
21. Supporting obligations: attachment...............................................................41
22. Perfection: general.........................................................................................41
23. Perfection by possession, control or registration...........................................42
24. Continuity of perfection where later perfection in another way....................42

25. Continuation of security interests in proceeds ..............................................42
26. Continuous perfection of security interests in proceeds................................43
27. Temporary perfection of security interests in proceeds................................43
28. Temporary perfection: negotiable instrument or investment security returned to debtor..........................................................................................43

PART 4  44

PRIORITY IN GENERAL  44

29. Priority when Law provides no other way of determining priority...............44
30. Special priority rules for investment securities and deposit accounts...........45
31. Transfer does not affect priority....................................................................46
32. Voluntary subordination ...............................................................................46
33. Future advances and priorities in relation to future advances.......................46
34. Priority of purchase money security interest.................................................46

PART 5  47

TRANSFERS OF COLLATERAL  47

35. Rights of debtor may be transferred..............................................................47
36. General priority of security interest in transferred collateral over

security interests granted by transferee.........................................................47

37. Transfer of debtor's interest in collateral with consent.................................48
38. Transfer of debtor's interest but secured party has certain knowledge.........48
39. Transfer of debtor's interest in collateral without consent, but secured

party later has knowledge .............................................................................49

40. Prior security interest not subordinated.........................................................50

PART 6  50

TAKING FREE  50

41. Taking collateral free of unperfected security interests................................50
42. Creditor who receives payment of debt takes free........................................50
43. Holder of negotiable instrument....................................................................51
44. Purchaser of investment security takes free..................................................51

PART 7  51

ASSIGNMENTS OF RECEIVABLES  51

45. Effect of restriction on assignment (whether or not assignment is by

way of security).............................................................................................51

46. Debtor's duty to assignee in case of assignment otherwise than by way

of security......................................................................................................52

47. Rights of assignee of receivable....................................................................52

PART 8  53

ENFORCEMENT OF SECURITY INTERESTS  53

48. Meaning of "surplus"....................................................................................53
49. Secured party may take and sell collateral....................................................54
50. Duty of secured party selling collateral to obtain best price.........................54
51. Methods of sale of collateral.........................................................................54

52. Notice of sale of collateral ............................................................................54
53. Extinction of subordinate security interests on sale......................................55
54. Secured party to give statement of account to debtor and others..................55
55. Distribution of surplus...................................................................................55
56. Surplus may be paid into court......................................................................56
57. Bankruptcy of debtor or assignor..................................................................56
58. Limited avoidance of security interest or assignment in case of bankruptcy.....................................................................................................56
59. Secured party may apply certain collateral in satisfaction of secured obligation.......................................................................................................56
60. Proposal of secured party to take collateral...................................................57
61. Objections to proposal...................................................................................57
62. Objector may be requested to prove interest.................................................57
63. Where no objection .......................................................................................58
64. Facilitating realization of collateral...............................................................58
65. Disposal of collateral to purchaser for value and in good faith.....................59
66. Entitled persons may redeem collateral.........................................................59
67. Debtor may reinstate security agreement......................................................60
68. Limit on reinstatement of security agreement...............................................60

PART 9  60

REGISTRATION  60

69. Appointment of registrar...............................................................................60
70. Contents of registration.................................................................................61
71. Timing and other formalities.........................................................................61
72. Registration...................................................................................................62
73. Applicant to pass on verification statement ..................................................62
74. Registration invalid only if seriously misleading..........................................62
75. Duration of registration.................................................................................63
76. Renewal of registration .................................................................................63
77. Registration reflecting transfer where perfection is by registration..............63
78. Registration reflecting transfer where perfection not by registration............64
79. Registration of transfer may be made any time.............................................64
80. Transferee becomes secured party or assignee..............................................64
81. Registration to reflect subordination.............................................................64
82. Voluntary amendment or discharge of registrations .....................................65
83. Demand for registration of financing change statement ...............................65
84. Articles 85 – 87 do not apply where security trust deed ...............................66
85. Procedure where no compliance with demand..............................................66
86. Court order....................................................................................................66
87. Secured party may obtain court order...........................................................67
88. No fee for compliance with demand .............................................................67
89. Registration to be automated.........................................................................67
90. Removal of data from register.......................................................................68
91. Restoration of registration.............................................................................68
92. Correction of errors or omissions..................................................................69
93. Access to register ..........................................................................................69
94. Printed search result as evidence...................................................................69

PART 10  69

MISCELLANEOUS  69

95. Secured party to provide information ...........................................................69
96. Exemption from Article 95 ...........................................................................70
97. Costs of complying with Article 95..............................................................70
98. Order for compliance....................................................................................70
99. Failure to comply with order.........................................................................71
100. Obligation to disclose successor ...................................................................71
101. Loi (1880) sur la propriété foncière..............................................................71
102. Exclusive application of this Law.................................................................71
103. Capacity to give security under foreign law .................................................71
104. Fees...............................................................................................................72
105. Rules of court................................................................................................72
106. Orders............................................................................................................72
107. Regulations ...................................................................................................73
108. Amendments and repeals ..............................................................................73
109. Savings, and transitional and consequential provisions................................73
110. Citation and commencement.........................................................................74

SCHEDULE 1  75

AMENDMENTS AND REPEALS  75

1 Securities Interests (Jersey) Law 1983 repealed...........................................75 2 Bankruptcy (Désastre) (Jersey) Law 1990 amended.....................................75

SCHEDULE 2  76

SAVINGS AND TRANSITIONAL PROVISIONS  76

1 Interpretation.................................................................................................76 2 Registration and ancillary provisions in force during transitional

period ............................................................................................................76 3 After the transitional period..........................................................................76 4 Existing assignments of receivables..............................................................77

DRAFT SECURITY INTERESTS (JERSEY) LAW 200-

A LAW to make provision about security interests in intangible movables and assignments of receivables.

Adopted by the States  [date to be inserted] Sanctioned by Order of Her Majesty in Council  [date to be inserted] Registered by the Royal Court  [date to be inserted]

THE STATES, subject to the sanction of Her Most Excellent Majesty in Council, have adopted the following Law –

PART 1

INTERPRETATION

1  Definitions

In this Law, unless the context otherwise requires –

"administration of the States" includes department of the States;

"advance" –

1. means the payment of money, the provision of credit, or the giving of valuable consideration; and
2. includes,  to  the  extent  that  the  agreement  for  that  payment, provision or giving so provides, any liability of the relevant debtor to pay interest, credit costs, or other charges or costs in connection with an advance or in connection with the creation, attachment, perfection  or  enforcement  of  a  security  interest  securing  the advance;

"after-acquired  property"  means  intangible  movable  property  that  is acquired by a debtor after a security agreement is made, being a security agreement to which the debtor is party;

"assign" means sell (or otherwise transfer for valuable consideration) otherwise than by way of security;

"assignee" in relation to a receivable means a person who is assigned the receivable;

"assignor" in relation to a receivable means a person who assigns the receivable;

"attach" is defined by virtue of Article 17;

"cash" means money, cheques, drafts, or deposit accounts;

"collateral"  means  intangible  movable  property  that  is  subject  to  a security interest;

"control" has the meaning set out in Article 3;

"country"  includes  any  state,  territory,  province,  or  other  part  of  a country;

"Court" means the Royal Court;

"debtor" has the meaning set out in Article 2;

"default", in relation to a security agreement, means –

1. the failure to pay or otherwise to perform the obligation secured under the security agreement when due; or
2. the occurrence of an event that, under the security agreement, gives the secured party the right to enforce the security;

"deposit account" means a current, deposit or other account maintained with a bank, or another institution that takes deposits, and evidencing a depositor's right to the payment of money;

"documentary intangible" means a negotiable instrument or negotiable investment security;

"financial asset" means –

1. a financial instrument; or
2. an obligation of a person or a share, participation or other interest in a person or in property or an enterprise of a person that –

1. is, or is of a type, dealt in or traded on financial markets, or
2. is recognized in any area in which it is issued or dealt in as a medium for investment;

3. any property which is held by an intermediary for another person in a securities account if the intermediary has expressly agreed with the other person that the property is to be treated as a financial asset under this Law; or
4. a commodity futures contract, a commodity futures option or other similar contract;

"financial asset held with an intermediary" means the rights of an account holder resulting from a credit of the relevant financial asset to a securities account;

"financial instrument" means –

1. a share in a company or any other financial instrument equivalent to a share in a company;

2. a  bond  or  other  form  of  financial  instrument  giving  rise  to  or acknowledging indebtedness which is, or is of a type, dealt in or traded on financial markets; or
3. any other financial instrument that is normally dealt in and gives the  right  to  acquire  any  such  share,  bond,  instrument  or  other security by subscription, purchase or exchange or which gives rise to a cash settlement (excluding an instrument of payment),

and includes a unit of a collective investment scheme within the meaning of the Collective Investments Funds (Jersey) Law 1988, a money market instrument, a unit of an interest in a security (not being a unit represented by a certificate), and any rights, privileges or benefits attached to or arising from any of the financial instruments included in this definition;

"financing change statement" means the data required or authorized by or under  this  Law  to  be  entered  in  the  register  to  renew,  discharge,  or otherwise amend a financing statement;

"financing statement" means the data required or authorized by or under this Law to be entered in the register to effect a registration;

"intangible movable property" means a documentary intangible or any other movable property that does not consist of goods, documents of title or money;

"intermediary" means a person who maintains for others, or both for others and on his or her own account, registers or accounts to which investment securities may be credited or debited, but does not include a person who –

1. acts  as  registrar  or  transfer  agent  for  the  issuer  of  investment securities;
2. records in his or her own books details of investment securities credited  to  investment  securities  accounts  maintained  by  an intermediary in the names of other persons for whom he or she acts as manager or otherwise in a purely administrative capacity; or
3. maintains registers or accounts in the capacity of operator of a system for the holding and transfer of investment securities on records of the issuer or other records that constitute the primary record of entitlement to investment securities as against the issuer;

"investment security" means –

1. a share, bond, or other financial instrument or financial asset; or
2. an interest in any of those things,

but does not include money;

"land" means any corporeal hereditament, including a building, and land covered with water, and also includes any interest in land or water and servitudes or rights in, on or over land or water;

"Minister" means the Minister for Economic Development;

"money" means currency authorized as a medium of exchange by the law of Jersey or of any other country;

"negotiable instrument" means –

1. a bill of exchange or promissory note; or
2. any other writing that evidences a right to payment of money and is of a kind that, in the ordinary course of business, is transferred by delivery with any necessary endorsement;

"negotiable investment security" means an investment security that by law or usage is transferable by delivery or by delivery and endorsement;

"Order" means Order made under this Law; "perfect" is defined by virtue of Article 22;

"perfected by control", in relation to a security interest, means perfected by virtue of the secured party's taking control of the collateral;

"perfected  by  possession",  in  relation  to  a  security  interest,  means perfected  by  virtue  of  the  secured  party's  taking  possession  of  the collateral;

"perfected  by  registration",  in  relation  to  a  security  interest,  or  an assignment of a receivable, means perfected by virtue of the registration of  a  financing  statement  in  respect  of  the  security  interest  or  the assignment of the receivable, respectively;

"prescribed" means prescribed by Order;

"principal obligation" means an obligation arising in respect of a loan, a receivable, a negotiable instrument or an investment security, being an obligation that is not a supporting obligation;

"proceeds" –

1. means identifiable or traceable property, being property in which the  debtor  acquires  an  interest  and  that  is  derived  directly  or indirectly from a dealing with collateral or from a dealing with the proceeds of collateral;
2. includes  a  right  to  an  insurance  payment  or  other  payment  as indemnity  or  compensation  for  loss  (or  reduction  in  value)  of collateral;
3. includes  a  right  to  an  insurance  payment  or  other  payment  as indemnity  or  compensation  for  loss  (or  reduction  in  value)  of proceeds themselves; and
4. includes a payment made in total or partial discharge or redemption of intangible movable property or of an investment security,

but does not include interest, dividends or other income derived from collateral;

"purchase"  means  taking  by  sale,  lease,  discount,  assignment, negotiation,  mortgage,  pledge,  lien,  issue,  reissue,  gift,  or  any  other consensual  transaction  that  creates  an  interest  in  intangible  movable property;

"purchase money security interest" means –

1. a security interest taken in collateral by a seller to the extent that it secures the obligation to pay all or part of the collateral's purchase price; or

2. a security interest taken in collateral to the extent that it secures one or both of the following obligations –

1. the obligation to repay all or part of valuable consideration given to the debtor for the purpose of enabling the debtor to acquire rights in the collateral,
2. any obligation to pay credit charges and interest;

"receivable"  means  a  monetary  obligation,  whether  or  not  earned  by performance, arising from –

1. the supply of goods or services (other than insurance services); or
2. the supply of energy,

but does not include a deposit account or a right to payment embodied in an instrument or an investment security;

"register" means the register of security interests established under Part 9;

"to register" means –

1. in respect of a financing statement or a financing change statement, to enter in the register;
2. in respect of a security interest, to make the subject of a financing statement that is entered in the register or of a financing change statement that is entered in the register; or
3. in respect of an assignment of a receivable, to make the subject of a financing statement that is entered in the register or of a financing change statement that is entered in the register;

"registrar" means the registrar referred to in Article 69;

"secured party" means a person who holds a security interest for the person's own benefit or for the benefit of another person;

"securities account" means an account maintained by an intermediary, being  an  account  to  which  investment  securities  may  be  credited  or debited;

"security agreement" means an agreement that creates or makes provision for a security interest, and includes –

1. an agreement that varies, renews or extends a security agreement; and
2. writing that evidences a security agreement;

"security  interest"  means  an  interest  in  intangible  movable  property, being an interest that, under a security agreement, secures payment or performance of an obligation;

"settlement  system"  means  a  system  for  the  holding  and  transfer  of financial  instruments  on  records  of  the  issuer  or  other  records  that constitute the primary record of entitlement to financial instruments as against the issuer;

"supporting obligation" means a right to payment under a guarantee or indemnity  supporting  the  payment  or  performance  of  an  obligation (called the principal obligation) arising in respect of a loan, a receivable, a negotiable instrument or an investment security;

"temporarily  perfected",  in  relation  to  a  security  interest,  means temporarily perfected in accordance with Article 11 or Part 3;

"valuable consideration" means consideration that is sufficient to support an onerous contract (that is, a contrat à titre onéreux) and includes an antecedent debt or liability;

"verification statement" means a statement served under Article 72(2); "writing" includes –

1. the recording of words in a permanent and legible form;
2. the recording of words by electronic means in such a way that they can be retrieved and read; and
3. the display of words, by any form of electronic or other means of communication, that is subsequently recorded by electronic means in such a way that they can be retrieved and read.

2  Meaning of "debtor"

1. For the purposes of this Law, "debtor" means, in relation to a security interest, a person who owes payment or performance of an obligation secured under the relevant security agreement, whether or not that person owns or has other rights in the collateral.
2. In this Law, if that person and the person who owns or has other rights in the collateral are not the same person, "debtor" also includes –

1. the person who owns or has other rights in the collateral, where the term "debtor" is used in a provision of this Law dealing with the collateral;
2. the obligor, where the term "debtor" is used in a provision of this Law dealing with the obligation; or
3. both the person who owns or has other rights in the collateral and the obligor (if the context so requires).

3  Meaning of "control"

1. A secured party has control of collateral in any of the circumstances set out in paragraphs (3) to (6), but only if the relevant security agreement is in writing.
2. For the purposes of this Article –

1. something shall be taken to be in writing even if it is in oral form, as long as it has been recorded permanently; and
2. any  right  of  the  debtor  to  substitute  equivalent  collateral  or withdraw  excess  collateral  does  not  of  itself  mean  that  an investment security is not under the control of the secured party.

3. A secured party has control of a deposit account if –

1. the deposit account is transferred into the name of the secured party and that is done with the written agreement of the debtor and the bank, or other institution, with which the deposit account is held;

2. the debtor, the secured party and the bank or other institution have agreed in writing that the bank or other institution will comply with instructions  from  the  secured  party  directing  the  disposition  of funds in the account, even if the debtor retains the right to direct the disposition of funds in the account in the absence of a contrary direction from the secured party;
3. the deposit account is assigned (by way of security) to the secured party by instrument in writing signed by or on behalf of the debtor and notice of the assignment is given in writing to the bank or other institution; or
4. the secured party is the bank, or other institution, with which the deposit account is held.

4. A secured party has control of a securities account with an intermediary if –

1. the securities account is transferred into the name of the secured party and that is done with the written agreement of the debtor and the intermediary with whom the securities account is maintained;
2. the debtor, the secured party and the intermediary have agreed in writing that the intermediary will comply with instructions from the  secured  party  directing  the  disposition  of  securities  in  the account, even if the debtor retains the right to direct the disposition of securities in the account in the absence of a contrary direction from the secured party; or
3. the secured party is the securities intermediary.

5. A  secured  party  has  control  of  an  investment  security  (being  an investment security that is represented by a certificate and is not a bearer security) if he or she is registered with the issuer of the security as holder of the security or is in possession of the certificate and a written form of transfer signed by or on behalf of the debtor in favour of the secured party or in blank.
6. A  secured  party  has  control  of  an  investment  security  (being  an investment security that is not represented by a certificate) that is held in a settlement system if –

1. the operator of the system, on the written instructions of the person who  is  registered  in  the  system  as  holder,  has  credited  the investment security to a sub-account in the holder's own name but the holder has given the secured party a power of attorney over the investment security;
2. the operator of the system is, on the written instructions of the person who is registered in the system as holder, permitted to effect a transfer of title in the investment security only on the instructions of the secured party;
3. entry  in  a  written  register  maintained  by  or  on  behalf  of  the operator of the system determines legal title and the secured party is entered in the register as the holder; or
4. entry in a written register maintained by or on behalf of the issuer of  the  security  determines  legal  title  and  the  secured  party  is entered in that register as the holder.

PART 2

SCOPE OF LAW

4  Application of Law

1. This Law applies (except as provided under Article 109 and Schedule 2) only to the following –

1. a security interest created, after this Article comes into force, by a company registered in Jersey, or by a Jersey individual, over any of its or his or her intangible movable property, wherever the property is situated;
2. an assignment, after this Article comes into force, of a receivable by a company registered in Jersey or by a Jersey individual;
3. a security interest created, after this Article comes into force, by a company registered outside Jersey, or by an individual who is not a Jersey individual, over its or his or her intangible movable property situated in Jersey.

2. If the property referred to in paragraph (1)(a) is situated in a jurisdiction outside  Jersey,  this  Law does  not  affect  any  right  acquired  in,  or  in relation to, the property in accordance with the law of that jurisdiction.
3. In this Article, "Jersey individual" means –

1. in relation to an individual who has one or more places of business, an individual whose only or principal place of business is Jersey; or
2. in relation to an individual who does not have a place of business, an individual whose only or principal residence is in Jersey.

5  Security interests in own obligation

To avoid doubt, it is hereby declared that for the purposes of this Law –

1. a  bank  or  other  institution  owing  an  obligation  to  pay  money  to  a depositor of a deposit held by the bank or institution; or
2. an intermediary owing an obligation to deliver or transfer securities or cash to the holder of an account with the intermediary,

may take a security interest in its own such obligation.

6  Security interest in proceeds

The fact that a security interest is a security interest in proceeds shall not prevent the application of this Law to that security interest, as long as the proceeds are intangible movable property.

7  Secured party with title to collateral

The fact that the secured party and not the debtor may hold title to collateral under a security agreement shall not affect the application of any provision of

this Law relating to rights, obligations, and remedies, under or in respect of the agreement.

8  Interests excluded

This Law shall not apply to or in respect of, or affect, any of the following interests –

1. a security interest in any intellectual property;
2. a lien, charge, or other interest in intangible movables, created by any other enactment or by the operation of any rule of law;
3. any right of set-off, netting, or combination of accounts;
4. any interest prescribed by Order for the purposes of this Article.

9  Transactions excluded

This Law shall not apply to an interest created or provided for by any of the following transactions –

1. the creation or transfer of an interest in land;
2. a transfer of a right to payment that arises in connection with an interest in land, including a transfer of rental payments payable under a lease of or licence to occupy land, unless the right to payment is evidenced by an investment security;
3. a transfer of an unearned right to payment under a contract to a person who is to perform the transferor's obligations under the contract;
4. a transfer of present or future wages, salary, pay, commission, or any other compensation for labour or personal services of an employee;
5. an assignment for the general benefit of creditors of the person making the assignment;
6. a transfer of a right to damages in tort;
7. an assignment of receivables made solely to facilitate the collection of the receivables on behalf of the person making the assignment;
8. an assignment of a single receivable or negotiable instrument in whole or in partial satisfaction of a pre-existing indebtedness;
9. an assignment of receivables as part of a sale of a business, unless the seller remains in apparent control of the business after the sale;
10. an  assignment  (whether  or  not  by  way  of  security),  mortgage,  or assignment (by way of security) of a mortgage, of a ship or vessel, or of any share of a ship or vessel;
11. a transfer or other transaction by way of security in respect of a fishing quota or fishing entitlement;
12. a sale coupled with a repurchase;
13. stock lending or securities lending.

Cf Personal Property Security Act 1993 s 4 (Saskatchewan)

10  Subordination agreements

1. For  the  purposes  of  this  Law,  an  agreement  ("a  subordination agreement")  among  creditors  of  the  same  debtor,  under  which  one creditor ("the junior creditor") subordinates his or her rights as such a creditor to the rights of another of those creditors ("the senior creditor") as such a creditor, does not create or provide for a security interest unless the agreement expressly provides that it does so.
2. For the purposes of this Law, where –

1. a subordination agreement exists; and
2. it, or a further agreement, provides that sums received by the junior creditor from the debtor shall –

1. be transferred to the senior creditor, and
2. after being so received and before being so transferred, be held on trust for the senior creditor,

no security interest in favour of the senior creditor is created or provided for unless it is expressly created, or expressly provided for, by agreement.

11  Perfection under this Law if collateral moved to Jersey

1. This Article applies to a security interest created under the law of a jurisdiction other than Jersey in which the collateral is situated when the security  interest  attaches,  being  a  security  interest  referred  to  in Article 4(1)(a).
2. If  the  security  interest  was  perfected  under  the  law  of  the  other jurisdiction when the security interest attached and the collateral was then moved to Jersey –

1. the security interest shall be temporarily perfected by virtue of this paragraph until the expiration of 30 days after the day on which the collateral is moved to Jersey; and
2. the security interest may be perfected under Part 3.

3. If  the  security  interest  was  not  perfected  under  the  law  of  the  other jurisdiction when the security interest attached and the collateral was then moved to Jersey, the security interest may be perfected under Part 3.

Cf Personal Property Security Act 1993 s 5(5) (Saskatchewan)

12  Notice and knowledge

1. Registration of a financing statement or financing change statement shall not constitute constructive notice of the existence of the statement (or constructive  notice  of  its  contents)  to  any  person,  or  constructive knowledge of the existence of the statement (or constructive knowledge of its contents) by any person.

Cf Personal Property Security Act 1993 s 47 (Saskatchewan)

2. Any priority under this Law of a perfected security interest, or perfected assignment of a receivable, over a security interest applies even if the first-mentioned security interest was acquired, or the assignment of the

receivable  was  made,  with  actual  knowledge  of  the  last-mentioned security interest.

3. Any priority under this Law of a perfected security interest, or perfected assignment of a receivable, over an assignment of a receivable applies even  if  the  security  interest  was  acquired,  or  the  first-mentioned assignment  was  made,  with  actual  knowledge  of  the  last-mentioned assignment of the receivable.

Cf Cape Town Convention Article 29

13  Law to bind the Crown and States

1. This Law applies to the States and any Minister, or administration, of the States.
2. Subject to this Article, this Law shall bind the Crown.
3. No contravention by the Crown of any provision of this Law shall make the Crown criminally liable.
4. However -

1. the Court may, on the application of the Minister, declare unlawful any act or omission of the Crown that contravenes a provision of this Law; and
2. the provisions of this Law apply in any event to persons in the public service of the Crown as they apply to other persons.

5. This Law does not apply to Her Majesty in her private capacity.

PART 3

ATTACHMENT AND PERFECTION

14  Security agreement

1. A security interest may be created by agreement.
2. For the avoidance of doubt, it is hereby stated that –

1. a security interest in the nature of a hypothec may be created over intangible movable property; and
2. a  security  interest  may  be  created  by  the  parties  to  a  security agreement to secure the obligation of a third party.

3. Except as otherwise provided by this Law or any other enactment or any rule of law, a security agreement shall be effective according to its terms between the parties to the agreement, against purchasers of the collateral, against creditors of the debtor and against third parties generally.

Cf Personal Property Security Act 1993 s 9(1) (Saskatchewan)

15  Floating charge

1. A security interest that is expressed as a floating charge or, but for this Article, would otherwise be in the nature of a floating charge –

1. attaches to each item of the collateral in accordance with Articles 18 to 20, and at the time provided for in those Articles; and
2. on attachment shall, despite that expression or nature, take effect as a fixed security interest in that collateral.

2. Nothing in paragraph (1) prevents the debtor from dealing from time to time in the collateral if that is in accordance with the security agreement.

16  Description of proceeds not required for enforceability against third

parties

Except as otherwise provided in this Law, a security interest in proceeds shall be  enforceable  against  a  third  party whether  or  not  the  security  agreement contains a description of the proceeds.

Cf Personal Property Security Act 1993 s 10(5) (Saskatchewan)

17  Attachment

The effect of attachment is the creation of a security interest enforceable against a debtor.

18  Attachment: general rule

1. Except as provided in Articles 20 and 21, a security interest attaches to collateral under a security agreement at the time when the following conditions are all satisfied –

1. valuable consideration has been given in respect of the security agreement;
2. the debtor has rights in the collateral; and
3. one or both of the following clauses are satisfied –

1. the secured party has possession or control of the collateral,
2. the security agreement isin writing signed by or on behalf of the debtor and contains a description of the collateral that is sufficient to enable the collateral to be identified,

or at any such time as the parties determine by agreement, being a time after those conditions are all satisfied.

2. For the purposes of this Article, a description of collateral is sufficient to enable the collateral to be identified if the description is –

1. a description of the collateral by item;
2. a description of the collateral by type;
3. a  statement  that  the  security  agreement  covers  all  present  and future collateral; or

4. a  statement  that  the  security  agreement  covers  all  present  and future  collateral  except  for  specified  items  or  types,  and  the collateral is not within those exceptions.

19  After-acquired property

1. A security agreement may provide for a security interest in after-acquired property.
2. Nothing  in  Article 18  prevents  the  attachment,  without  specific appropriation by the debtor, of a security interest to collateral that is after- acquired property.

Cf Personal Property Security Act 1993 s 13(1) (Saskatchewan)

3. Subject to any agreement to the contrary between the parties to a security agreement,  the  relevant  security  interest  attaches  to  after-acquired property on the latter's acquisition by the debtor.
4. An assignment of a future receivable vests the receivable in the assignee on the acquisition of the receivable by the assignor without the need for specific appropriation by the assignor.

20  Investment securities: automatic attachment in favour of intermediary

1. A security interest in favour of an intermediary attaches to a person's investment securities held with the intermediary if –

1. the person buys the investment securities through the intermediary in a transaction in which the person is under an obligation to pay the purchase price to the intermediary on or before the purchase; but
2. the intermediary credits the investment securities to the buyer's securities account before the buyer pays the intermediary.

2. The  security  interest  secures  the  buyer's  obligation  to  pay  for  the investment securities.

21  Supporting obligations: attachment

A security interest attaches in respect of a supporting obligation when it attaches to the collateral securing the principal obligation.

22  Perfection: general

1. Except as otherwise provided in this Law, a security interest is perfected when both of the following conditions are satisfied –

1. the security interest has attached; and
2. any further steps required under this Law for perfection have been completed.

2. For the purposes of this Article, the order in which those conditions are satisfied makes no difference.

Cf Personal Property Security Act 1993 ss 19, 24(1), 25 (Saskatchewan)

23  Perfection by possession, control or registration

1. Possession of collateral by the secured party, or on the secured party's behalf by a person other than the debtor, perfects a security interest in collateral that is a documentary intangible.
2. Control of collateral by the secured party, or on the secured party's behalf by a person other than the debtor, perfects a security interest in collateral of any of the kinds referred to in paragraphs (3) to (6) of Article 3.
3. Registration perfects a security interest in any type of collateral except investment securities to which a security interest has attached as referred to in Article 20.
4. Registration perfects an assignment of a receivable.
5. Subject to Article 24, perfection by possession, control or registration continues only while the possession, control or registration (respectively) is maintained.
6. Perfection of a security interest in a receivable, a negotiable instrument, or  an  investment  security,  that  secures  a  principal  obligation automatically perfects a security interest in any supporting obligation.

24  Continuity of perfection where later perfection in another way

A security interest is continuously perfected if –

1. the security interest is perfected in one way;
2. the security interest is subsequently perfected in another way; and
3. there  is  no  intervening  period  during  which  the  security  interest  is unperfected.

Example

Person A has perfected its security interest in person B's shares by taking

possession of person B's share certificates.

Person A releases the share certificates to person B so that person B can sell the

shares.

Person A's security interest in person B's shares, which remains perfected for 30 days after the share certificates were delivered to person B, is

continuously perfected from the time that person A took possession of the share certificates.

Cf Personal Property Security Act 1993 s 23(1) (Saskatchewan)

25  Continuation of security interests in proceeds

Except as otherwise provided in this Law, a security interest in collateral that is dealt with or otherwise gives rise to proceeds –

1. continues in the collateral, unless the secured party expressly or impliedly authorized the dealing; and
2. extends to such of the proceeds as are capable, according to Part 2, of being the subject of a security interest to which this Law applies.

Cf Personal Property Security Act 1993 s 28(1) (Saskatchewan)

26  Continuous perfection of security interests in proceeds

A security interest in proceeds is a continuously perfected security interest in proceeds if –

1. the security interest in the original collateral is perfected by registration of a financing statement that contains a description of the proceeds that would be sufficient to perfect a security interest in original collateral of the same kind; or
2. the security interest in the original collateral is perfected by registration of  a  financing  statement  that  contains  a  description  of  the  original collateral, and the proceeds –

1. are of a kind that is within the description of the original collateral,
2. are of a kind that is capable, according to Part 2, of being the subject of a security interest to which this Law applies and are acquired before the expiration of 30 days after the security interest in the original collateral attached to them,
3. consist  of  a  payment  made  in  total  or  partial  discharge  or redemption of collateral, or
4. consist of a right to an insurance payment or other payment as indemnity or compensation for loss (or reduction in value) of the collateral or proceeds of the collateral.

Cf Personal Property Security Act 1993 s 28(2) (Saskatchewan) 27  Temporary perfection of security interests in proceeds

A security interest in proceeds is temporarily perfected until the expiration of 30 days after the security interest in the original collateral attached to the proceeds, if –

1. the security interest in the original collateral is perfected; and
2. the security interest in the proceeds is not continuously perfected under Article 26.

Cf Personal Property Security Act 1993 s 28(3) (Saskatchewan)

28  Temporary perfection: negotiable instrument or investment security

returned to debtor

A  security  interest  in  a  negotiable  instrument  or  an  investment  security  is temporarily perfected until the expiration of 30 days after the secured party made the negotiable instrument or investment security available to the debtor, if –

1. the security interest was perfected by control;
2. the security interest was, immediately before the negotiable instrument or investment security was made available to the debtor, still perfected; and
3. the secured party gave control of the negotiable instrument or investment security  to  the  debtor  for  sale,  exchange,  presentation,  collection, renewal, or registration of a transfer.

Example

Person A has perfected its security interest in person B's shares by taking possession of person B's share certificates.

Person A releases the share certificates so that person B can sell the shares. Person A's security interest in person B's shares is temporarily perfected for 30 days after the share certificates were made available to person B.

Cf Personal Property Security Act 1993 s 26(1) (Saskatchewan)

PART 4

PRIORITY IN GENERAL

29  Priority when Law provides no other way of determining priority

1. Where  this  Law  provides  no  other  way  of  determining  priority  the following rules apply –

1. a  perfected  security  interest  has  priority  over  an  unperfected security interest in the same collateral;
2. a  perfected  assignment  of  a  receivable  has  priority  over  an unperfected assignment of the same receivable or an unperfected security interest in the same receivable;
3. a perfected security interest in a receivable has priority over an unperfected assignment of the same receivable;
4. except in the case set out in sub-paragraph (f), priority among perfected security interests in the same collateral (where perfection has been continuous) goes to the security interest in relation to which any of the following events first occurred –

1. a financing statement was registered,
2. the secured party, or another person on the secured party's behalf, took possession or control of the collateral,
3. the security interest was temporarily perfected in accordance with this Law;

5. except in the case set out in sub-paragraph (f), priority among perfected assignments of receivables (where perfection has been continuous) goes to the assignment in relation to which a financing statement was first registered;
6. if collateral is a receivable and there are one or more perfected security  interests  in  the  receivable  and  one  or  more  perfected

assignments of the receivable, priority among all those security interests and assignments (where perfection has been continuous) goes to the security interest or assignment in relation to which any of the following events first occurred –

1. a financing statement was registered,
2. the secured party, or another person on the secured party's behalf,  took  possession  or  control  of  the  receivable  as collateral,
3. the security interest was temporarily perfected in accordance with this Law;

7. priority among unperfected security interests in the same collateral is to be determined by the order of attachment of the security interests;
8. priority among unperfected assignments of the same receivable is to be determined by the order in which the assignments occurred;
9. if collateral is a receivable and sub-paragraph (f) does not apply, priority among one or more unperfected security interests in the receivable and one or more assignments of that receivable is to be determined by the order of events, where an event is either an attachment of a security interest or an assignment, as each case requires.

Cf Personal Property Security Act 1993 s 35(1) (Saskatchewan)

2. For  the  purposes  of  paragraph  (1),  a  continuously  perfected  security interest or assignment of a receivable is to be treated at all times as perfected by the method by which it was originally perfected.

Cf Personal Property Security Act 1993 s 35(2) (Saskatchewan)

3. For the purposes of paragraph (1), the time of registration, possession or control, or perfection, of a security interest in original collateral is also the  time  of  registration,  possession  or  control,  or  perfection,  of  the security interest in its proceeds.

Cf Personal Property Security Act 1993 s 35(3) (Saskatchewan)

4. If there is a security interest in a receivable, a negotiable instrument, or an investment security, that is the subject of a principal obligation, a security interest in any supporting obligation, unless separately perfected, shall have the same priority as the first-mentioned security interest.