Jersey's Royal Court has handed down a landmark ruling with implications for local lenders and creditors.
The island's highest court has confirmed that secured claims in the Jersey bankruptcy procedure - known as 'dégrèvement' - are limited to the maximum amount on the face of the document that creates the charge, plus three years' arrears of interest.
In Jersey law, a 'dégrèvement' is a procedure whereby a creditor may take ownership of a debtor's immovable property such as a house or other buildings. The creditor is then known as the 'tenant après dégrèvement' (tenant), and becomes liable to pay off secured creditors who rank ahead of them.
Carey Olsen Partner, Marcus Pallot (pictured), argued that the amount that a secured creditor in a dégrèvement could claim as being secured was limited to the maximum amount on the face of the document (Billet) that created the 'registered charge over the property' (Hypothec), plus three years' arrears of interest, in a recent case.
Pictured: The judgment was handed down by the Royal Court.
It focused on how much a tenant would have to pay, and for what, in order to be confirmed by the Court as the Tenant.
Jersey Home Loans and Acorn Finance Limited were secured creditors who ranked ahead of Carey Olsen's client. Their advocates argued that they could claim very significant costs which could be added to the amount shown on the Billet. It was also suggested that interest could be added to the secured amount which was in addition to the "three years' arrears of interest".
However, the Royal Court agreed with Carey Olsen that the secured claims were limited to the maximum amount on the face of the Billet plus the statutory three years' arrears of interest.
The Court stressed that it was important that the Public Registry reflected the interests of secured creditors and allowed those looking at the Public Registry to know what the maximum amounts to claim were. Allowing secured creditors to secure further unlimited sums such as costs and interest without further registration of another Billet would offend this principle, the Court said.
Advocate Pallot explained: "This case is of significant importance for lenders and creditors who are considering lending and/or enforcement.
"It confirms the advice provided by Carey Olsen to its clients for a considerable time that where for example there is an amortising mortgage, a lender may capitalise outstanding interest, if permitted under the terms of the lending, and add it to the capital amount outstanding. If the two, when added together, come to less than or equal to the maximum amount that has been registered on the Billet then all of that will be secured. If there is an amount in excess of the amount registered then that excess amount should still be due and owing, but it will be unsecured."
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