Isle of Man insolvency
By Steven Wood, Practice Support Specialist (Insolvency)
27 March 2023
We are regularly asked queries about insolvency systems in crown dependencies, which are not part of the UK or the European Union but are self-governing dependencies of the crown.
The three crown dependencies are the Bailiwick of Guernsey, the Bailiwick of Jersey and the Isle of Man.
They have their own directly elected legislative assemblies, administrative, fiscal and legal systems and their own courts of law.
This article covers the Isle of Man and forms part of a series looking at insolvency procedures in the crown dependencies.
Governing legislation
The primary legislation governing insolvent companies can be found in Part V of the Companies Act 1931.
This is supported by the Companies (Winding-up) Rules 1934, various laws relating to bankruptcy enacted in the 1800s and the Preferential Payments Act 1908.
The Isle of Man Treasury is in the process of undertaking a three-phase project to review and reform the laws relating to debt and debt recovery. As part of this project, a consultation ran on the reform and modernisation of insolvency and bankruptcy law in late 2022.
The Treasury will publish a summary of the responses received in due course. The responses will assist the Treasury, in partnership with the Department for Enterprise and others, in developing the policy, and proposals to implement that policy, in respect of insolvency and bankruptcy law reform and related matters.
Any Bill prepared as a result of the consultation will be subject to a further period of consultation, to enable further comment to be made on the substantive proposals set out in that draft Bill.
Procedures
Voluntary winding-up (by creditors or by members)
The voluntary winding-up process is normally commenced by the directors convening a general meeting to put a resolution to the shareholders that the company be wound up and a liquidator appointed (winding-up resolution). However, shareholders could themselves requisition a general meeting without the instigation of the directors.
To be a members’ voluntary winding-up, the directors must (prior to the winding-up resolution) swear a declaration that the company is solvent and able to pay its debts within a period of one year.
Winding-up by the court
An insolvent winding-up that can be initiated by a petition brought by the company, a creditor, a shareholder, the Isle of Man Treasury; or the Financial Services Authority.
Practice direction 01/2023 sets out the information that must be supplied to the Court by an individual seeking to be appointed as liquidator, which includes a witness statement providing:
- Professional qualifications;
- Their experience of Isle of Man insolvency practice;
- Confirmation that they are fully cognizant in Isle of Man insolvency law; and
- Confirmation that they maintain an office in the Isle of Man.
Receivership
In the Isle of Man, receivership is not a collective procedure and can be initiated at any time allowed by a fixed or floating charge granted by the borrowing company. A receiver owes a duty of care to their appointer, but only limited legal obligations to others.
Receivers are not given statutory powers so an Isle of Man law governed security agreement must express in full all the powers the secured creditor would wish a receiver to be able to exercise.
Companies House equivalent and forms
Court
The Chancery Division of the Isle of Man High Court of Justice hears all claims to wind up a company and for the appointment of a liquidator. The Staff of Government Division of the High Court of Justice is the Isle of Man's Court of Appeal.
Considerations
The laws applicable in the Isle of Man would permit ICAS members or insolvency practitioners to act.
However, the criteria set out in Practice Direction 01/2023 should be borne in mind when considering acceptance of any appointment in that jurisdiction. Consideration should also be given to the requirements of the ICAS Code of Ethics prior to accepting any appointment. In particular the fundamental principle of professional competence and due care should be considered where specific threats may exist due to operating within an unfamiliar legal jurisdiction and with unfamiliar procedures in that jurisdiction.
Consideration should be given to seeking separate legal advice from a practitioner in the Isle of Man or a party familiar with the law there.