In September 2020, only months into what we now know was to become a two-year Global Pandemic, we looked at what Covid-19 might mean for businesses and their creditors. At that time we had seen some high profile casualties – Debenhams, DW Sport, Monsoon, Laura Ashley and Virgin Media – and were anticipating further defaults and insolvencies in a number of sectors of the UK economy.

Whilst there certainly was distress, government support (in the form of CBILS and rent moratoria, amongst other measures) and a general theme of creditor forbearance was, in many cases, sufficient to prop up businesses throughout the duration of the pandemic.

However, as we emerge from the Global Pandemic, the impact of the conflict in Ukraine poses further global concern and rising energy prices are putting businesses under extreme pressure. Inflation, increasing interest rates in a bid to combat such inflation, the cost-of-living impact on consumer spending and supply chain issues (coming out of Covid) are also adding to a worsening economic climate.

In light of the above we expect creditors to be increasingly examining enforcement options alongside continuing to pursue consensual work-outs to combat distress.

Given the popularity of Jersey and Guernsey holding structures for investment into the UK, secured creditors with exposure to such structures will need legal advice in those jurisdictions where enforcement strategies are being considered.

Enforcement of share security over Jersey or Guernsey companies in those structures will generally be one of the enforcement options.

With that in mind, it is a good time for secured creditors with Jersey and/or Guernsey share security to consider steps that they can take now to make a future enforcement of that security as efficient as possible.

Such steps include:

• ensuring that fully executed copies of the security documents are available;
• ensuring that those security documents have been reviewed by Jersey/Guernsey counsel (as applicable) and any issues that may impact on enforcement have been addressed;
• ensuring that the security interests remain attached and perfected;
• locating the original share certificates and security stock transfer forms that will be required should the secured shares be transferred (whether as a further perfection step outside of a formal enforcement or as a means of enforcement);
• arranging for full CDD/KYC information to be collated for (i) any 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 should this be permitted by the underlying security documents;
• engaging with valuation experts and developing a plan for the valuation and marketing of the secured assets;
• ensuring that there are no regulatory or other consents required in connection with the proposed enforcement steps; and
• ensuring that where the security has been given in support of a foreign law loan obligation, the enforcement is consistent with the terms of the foreign law loan documentation and the enforcement process is coordinated amongst both Jersey/Guernsey and foreign law counsel.

Enforcement steps in relation to Jersey and Guernsey share security must be taken in accordance with the underlying security documents and the relevant legislation in each jurisdiction (being the Security Interests (Jersey) Law 2012 in Jersey and the Security Interests (Guernsey) Law, 1993 in Guernsey). Legal advice is therefore key.