In September 2020, just months into what we now know was to become a two-year global pandemic, we looked at what Covid-19 could mean for businesses and their creditors. At that time we had seen high profile casualties – Debenhams, DW Sport, Monsoon, Laura Ashley and Virgin Media – and anticipated further failures and insolvencies across a number of sectors of the UK economy.
While there was certainly distress, government support (in the form of CBILS and rent moratoriums, among other measures) and a general theme of creditor forbearance was, in many cases, enough to sustain businesses for the duration of the pandemic.
However, as we emerge from the global pandemic, the impact of the conflict in Ukraine is causing additional global concern and rising energy prices are putting businesses under extreme pressure. Inflation, raising interest rates in a bid to combat that inflation, cost of living impact on consumer spending and supply chain issues (coming out of Covid) all add up also to the deterioration of the economic climate.
In light of the above, we expect creditors to increasingly consider enforcement options while continuing to seek consensual solutions to address distress.
Given the popularity of Jersey and Guernsey holding structures for UK investments, secured creditors exposed to these structures will need legal advice in jurisdictions where enforcement strategies are being considered.
Enforcing equity collateral on Jersey or Guernsey companies in these structures will usually be one of the options for enforcement.
With this in mind, now is the time for secured creditors with shared security interests in Jersey and/or Guernsey to consider what steps they can take now to make future enforcement of that security interest as effective as possible.
These steps include:
- ensure that fully signed copies of security documents are available;
- ensure that such security documents have been reviewed by the Jersey/Guernsey solicitor (if applicable) and that any issues which may affect the performance have been resolved;
- ensuring that collateral remains attached and perfect;
- locate the original share certificates and security deed transfer forms that will be required if the secured shares are transferred (whether as an additional step of perfection outside of a formal execution or as a means of ‘execution );
- arranging for the collection of complete CDD/KYC information for (i) potential transferees of the secured shares and (ii) new directors of the target company that the secured creditor may wish to appoint using the voting rights on the secured shares, the where applicable authorized by the underlying security documents;
- work with valuation experts and develop a plan for valuing and marketing secured assets;
- ensure that no regulatory or other consent is required in connection with the proposed enforcement actions; and
- ensure that, where collateral has been given in support of a foreign law loan obligation, enforcement is in accordance with the terms of the foreign law loan documentation and that the enforcement process is coordinated between Jersey/Guernsey and overseas lawyers.
Enforcement action in respect of Jersey and Guernsey equity securities should be taken in accordance with the underlying security documents and relevant legislation in each jurisdiction (i.e. the Jersey Securities (Jersey) Act 2012 and the Sureties (Guernsey) Act 1993 in Guernsey). Legal advice is therefore essential.