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A Jersey Royal Court ruling 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 apres dégrèvement"
(Tenant), and becomes liable to pay off secured creditors who rank
ahead of them.
In the matter of the dégrèvement of the
immovable property of Mrs Powell [2019] JRC004 (Re Powell),
Carey Olsen partner Marcus Pallot successfully 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.
Re Powell concerned 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 (JHL) and Acorn Finance Limited were secured
creditors who ranked ahead of Carey Olsen's client. Their
advocates each argued that they could claim very significant costs
which could be added to the amount shown on the Billet and be
regarded as secured amounts for the purposes of the
dégrèvement. It was also suggested that interest
could be added to the secured amount which was in addition to the
"three years' arrears of interest" set out in the
'Loi 1880 sur la propriete fonciere' (the 1880 Law).
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 secured creditors could not add on additional amounts beyond
what was stated in the Billet, to include additional amounts for
costs. 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 were that a secured creditor could claim as being secured
debts. Allowing secured creditors to secure further unlimited sums
such as costs and interest without further registration of another
Billet would offend this principle.
It had undoubtedly been the case that both JHL and Acorn Finance
had become involved in a difficult case with their debtor which had
taken considerable time to resolve and engaged them in multiple
prior appearances at Court and a significant level of costs.
However, that did not entitle those costs to become additional
secured sums.
"This case is of significant importance for lenders and
creditors who are considering lending and/or enforcement,"
said Advocate Pallot.
"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."
Re Powell also confirmed that the 1880 Law provides
that in any dégrèvement a secured creditor can add on
a maximum amount of three years' arrears of interest to the
amount shown on the Billet, subject to the general rule that such
interest must be reasonable.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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