In recent years the judiciary in a number of other well regarded offshore financial centres (including Hong Kong, Bermuda, BVI and Cayman) have shown a willingness in certain circumstances to appoint PLs with “soft or light touch” powers to facilitate restructurings of multi-jurisdictional groups in financial distress.
This articles briefly addresses the question as to whether in Manx law the High Court of Justice of the Isle of Man (IOM) has a similar jurisdiction? Whilst there is no Manx case law directly on point, we answer the question in the affirmative for the reasons set out below.
Therefore, we see no reason why the IOM court would not exercise its jurisdiction on the facts of a suitable case and, among other things, provide a stay of proceedings in the IOM whilst the PLs remain in office to allow a consensual cross-border restructuring to be explored and hopefully implemented in all relevant jurisdictions (including this one) in order to bring about a more advantageous resolution for creditors and other stakeholders.
The Manx legal context.
The IOM operates a common law system, based on decided case law, which follows the doctrine of precedent or stare decisis (let decided things stand or keep to what is decided). The Island is not a signatory to, and has not enacted, the UNCITRAL Model Law on Cross-Border Insolvency. Furthermore, there is no other statutory power of the IOM court to recognise and facilitate cross-border restructurings (including those involving the appointment of PLs with soft-touch powers in other jurisdictions). Consequently the court’s ability to do so derives solely from Manx common law. The exact scope of the application of ‘modified universalism’ in Manx law is presently uncertain (as it currently is in a number of similar common law jurisdictions). Despite this common law concept of recognition and assistance of foreign insolvency proceedings having been “pulled-back” in recent years (e.g. Singularis Holdings Limited v PricewaterhouseCoopers [2014] UKPC 36), we are of the view that the Manx court will generally, whenever able and appropriate to do so, strive to assist foreign office holders and their related cross-border insolvency proceedings.
IOM law does not have an analogous procedure to English administration; including the statutory moratorium against creditor action that applies to an English company in administration. Section 165(1) of the Isle of Man Companies Act 1931 (the “1931 Act”) refers to the powers of the court on hearing a winding up claim and provides:
On hearing a winding-up petition [now claim form] the court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make any interim order, or any other order that it thinks fit, but the court shall not refuse to make a winding-up order on the ground only that the assets of the company have been mortgaged to an amount equal to or in excess of those assets, or that the company has no assets.
Under section 178(1) of the 1931 Act, subject to the provisions of that section the IOM court may appoint a liquidator provisionally at any time after the presentation of the winding-up claim. Section 178(2) provides that the appointment of a provisional liquidator may be made at any time before the making of a winding-up order and either the official receiver or any other fit person may be appointed. Under section 178(3) it is further provided that where a liquidator is provisionally appointed by the court, the court may limit and restrict his powers by the order appointing him.
Rule 21(1) of the Isle of Man Companies (Winding Up) Rules 1934 provides that after the presentation of a petition (now claim form) upon the application of a creditor, or of a contributory, or of the company, and upon proof by affidavit of sufficient ground for the appointment of a provisional liquidator, the court, if it thinks fit and upon such terms as in the opinion of the court shall be just and necessary, may make the appointment.
There is no developed Manx jurisprudence on this issue of appointing “soft touch” PLs to facilitate a cross-border restructuring. Deemster Doyle in Isle of Man Financial Services Authority v Gordon Wilson (provisional liquidator and deemed official receiver of the Eco Resources Fund PCC Plc) (14 July 2017) at paragraph 75 of his judgment stated:
In the normal course of events a liquidator will be there to collect any assets and make any appropriate distributions, but matters may not always be that simple. Some liquidations may involve investigations and actions being taken against officers and others who may have been guilty of wrongdoing leading to the liquidation of the company. Some liquidations may involve liquidators considering proposals that may assist creditors, contributories and others and may also be in the public interest.
The then First Deemster referred to certain other authorities and a couple of cases in Bermuda adding:
Both judgments of Ian Kawaley Chief Justice of Bermuda and a recognised expert in international insolvency cases, are interesting examples of where provisional liquidation proceedings and the winding up of a company may not proceed along “normal” lines.
In a similar vein, Deemster Corlett, now the Island’s First Deemster (in effect Chief Justice), in the Kaupthing Singer and Friedlander proceedings granted a number of adjournments to facilitate the progression of a proposed scheme of arrangement.
The law in respect of appointment of “light touch” provisional liquidators in other jurisdictions.
We note there have been a number of judgements in other commonwealth jurisdictions with similar statutory insolvency laws regarding the appointment of PLs on a soft-touch basis including: the Hong Kong Court of Appeal judgment in Re Legend International Resorts Ltd [2006] 3 HKC 565 and the judgment of Harris J in Re China Solar Energy Holdings Ltd [2018] HKCU 938. We further note the judgment dated 5 February 2019 of Commercial Court Judge Neville Adderley in the Eastern Caribbean Supreme Court the Territory of the Virgin Islands High Court of Justice (Commercial Division) in the matter of Constellation Overseas Limited. Constellation Overseas Limited is interesting in that it prays in aid at paragraphs [44] to [54] certain English statutory provisions, textbooks and judgments which a Manx Deemster may also consider persuasive.
The Manx court may also take into account the judgment of the present Chief Justice of Bermuda in Agritrade Resources Limited [2020] SC Bda 28 Comm ( 17 June 2020) where Chief Justice Hargun referred to the possibility of appointing a provisional liquidator to facilitate restructuring where the company was in the “ zone of insolvency”.
Advice.
It is our view that in Manx law the High Court of Justice of the IOM does have jurisdiction to appoint PLs with “soft touch” powers to facilitate a restructuring. This view is based on the Manx statutory provisions set out above and on the principle that in the absence of any specific local authority to the contrary, the Manx courts will be guided by relevant English and overseas authority in this area of the law.
However, this jurisdiction of the High Court of Justice is discretionary. Whether the court will exercise its discretion is clearly a question to be determined in light of the facts of any given case. However, where such an application is made in the IOM in connection with insolvency proceedings commenced against an affiliated group company in another jurisdiction where PLs with soft touch powers have already been appointed (e.g. in Hong, Bermuda, BVI or Cayman), and the Manx court is satisfied that there is a real prospect of a successful consensual restructuring, whereby the position of creditors and other stakeholders would be materially better than the realisation of assets on a winding-up, we see no reason why the court would not appoint PLs in respect of an IOM group company to assist with such a cross-border restructuring. The Manx court is likely, of course, to limit and restrict the powers of the PLs by the order appointing them in whatever way appeared appropriate to it (e.g. by stipulating a defined timetable for the restructuring discussions, with periodic up-dates on the progress of such discussions being given to the court with the alternative “end game” of a normal liquidation if a consensual deal cannot be achieved).
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The guidance in this note is for information purposes only and is not intended to be exhaustive. It is not intended to constitute legal or other professional advice, and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances. Cains only advises on the laws of the Isle of Man and accepts no responsibility for any errors, omissions or misleading statements or for any loss which may arise from reliance on the information in this note.
