Isle of Man: Asset Protection - New Guidance On Old Laws

Last Updated: 23 May 2001
Article by Paul Beckett

A recent judgment handed down in the High Court of the Isle of Man has clarified the law relating to dispositions of assets and the susceptibility to attack of such dispositions by creditors.

The Isle of Man has, quite properly, steered clear of introducing an "asset protection" or "creditor protection" statute. The Isle of Man, one of the most mature jurisdictions in Europe, with a legislative tradition stretching back over a thousand years, has wisely left such fashionable legislation to the newcomer jurisdictions in such places as the Caribbean, which functions almost exclusively at the level of simple "tax havens".

In Re: Heginbotham (Common Law Division, 15 February 1999) the relief of the Court was sought to recover certain assets that it was claimed had been assigned fraudulently in order to avoid them being exposed to enforcement proceedings in respect of an award of damages. The case is interesting since the party seeking the relief of the Court cited as authority the Fraudulent Assignments Act 1736, a piece of legislation which has not hitherto been the subject of reported judicial consideration for close on a century.

Before considering the ramifications of this important judgment it is worth briefly examining the material facts of the case.

The Facts

In 1992, Mr Heginbotham entered into an agreement for the sale of his business. The purchaser incorporated a company which was used as the vehicle to acquire the business. Before the sale the business had been carried on on an unincorporated basis. The purchasing company however adopted the trading style of the business including the trading name and the goodwill associated with it.

The Purchase Agreement was to be implemented in stages and was somewhat unusual in that effective control of the business was relinquished by Mr Heginbotham before the purchase money was paid. Following a series of disputes the relationship between vendor and purchaser broke down and litigation ensued. By this time the purchasing company was continuing the business in the same trading style and Mr Heginbotham was pursuing the balance of the purchase money. A pre-emptive strike had been taken by the vendor at an early stage in issuing the proceedings in 1992 but thereafter the litigation proceeded slowly. For reasons which are not material, Mr Heginbotham did not serve his Defence and Counterclaim until October 1995. In the intervening years steps had been taken which had the result of stripping anything of value from the original purchasing company, which although still in existence had no income and was effectively insolvent. The business that Mr Heginbotham had originally sold was still being conducted under exactly the same trading name. However, assets and goodwill had by 1995 been assigned to two different corporate entities.

In December of 1997 Mr Heginbotham obtained a judgment in default against the original purchasing company and immediately petitioned the Court for relief claiming inter alia that the business had been fraudulently assigned within the meaning of the Fraudulent Assignments Act 1736. Mr Heginbotham asked the Court for leave to enforce his judgment against the new corporate entities to whom the assets of the business had been assigned.

The Law

The Fraudulent Assignments Act 1736 is a very short piece of legislation. The Act provides as follows

'All fraudulent assignments or transfers of the debtor's goods or effects shall be void and of no effect against his just creditors, any custom or practice to the contrary notwithstanding'

In England the broadly equivalent legislation, The Statute of Elizabeth (13 Eliz, c 5) was repealed by the Law of Property Act 1925 although remnants of it can still be found in the Insolvency Act 1986. The development of the law in the Isle of Man has not followed the same course and no equivalent to the Law of Property Act 1925 or the Insolvency Act 1986 exists. The Fraudulent Assignments Act 1736 therefore remains on the statute book having been neither repealed nor modified by any legislation enacted by the Island's government since.

Case law is sparse. Prior to Re: Heginbotham, the last significant judicial pronouncements on the Act were made in the case of Corlett v Radcliffe (1859). This was a decision of the Judicial Committee of the Privy Council on appeal from the Court of Chancery of the Isle of Man. The Court was asked to construe the relationship between the Statute of Elizabeth and the Act of 1736. Lord Chelmsford stated

'Each case must depend upon its own circumstances, and in all the question is one of fact whether the transaction was bona fide, or was a contrivance to defraud creditors. It may however, be stated generally that a deed is void against creditors when the debtor is in a state of insolvency, or when the effect of the deed is to leave the debtor without the means of paying his present debts. If this is the condition of the debtor, or the consequence of his act, it is not sufficient to render a deed valid that it should be made upon good consideration'

There has since been a degree of speculation and uncertainty surrounding the issue of whether an assignment of property which places it beyond the reach of future creditors could be regarded as fraudulent within the meaning of the Act. The judgment in Re Heginbotham now appears to answer this question.

Present And Future Creditors

The judgment addresses two key issues. Firstly, the question of intent and whether it is necessary to show actual deceit. Whilst the Act refers to 'fraudulent' assignments in its title, there is no reference to intent or the burden of proof which must be established within the Act itself. In this regard the learned Judge concluded that the title of the Act must impute an intent by the debtor to assign or transfer his goods or effects fraudulently, in the context of the debtor and creditor relationship. Following the dicta of Cairns L.J. in Lloyds Bank Ltd v Marcan (1973) there is it seems a requirement that there be dishonesty and it should not be confined to cases of fraud involving actual deceit.

The second and perhaps more important issue relates to whether an intent or contrivance to defraud creditors can apply only to present or existing creditors or also to future creditors. In Corlett v Radcliffe Lord Chelmsford had referred to 'present debts'. The Court in Re Heginbotham held that this term must have been a reference to existing debts i.e. those subsisting at the date of the deed of transaction. It did not include debts which may possibly be incurred at some future date but would include known and ascertained debts which are to fall due on a date in the future.

Deemster Cain ruled: "A state of insolvency implies an inability to pay existing, or present debts. A person is not in a 'state of insolvency' merely because he may not be able to pay contingent or future debts, which may never materialise. ….I would construe the term 'present debts', however, to include known and ascertained debts which are to fall due on a date in the future. A transaction or contrivance designed to deprive known and ascertainable future creditors of timely recourse to property which would otherwise be applicable for their benefit….. would not be honest in the context of the relationship of the debtor and creditor and would not therefore be bona fide."


In the context of structuring an individual's or company's assets and financial affairs through the Isle of Man, the impact of Re Heginbotham cannot be underestimated.

The Isle of Man Government has made it clear that it has no intention of introducing asset protection legislation. Indeed, it is not required. If a trust is properly constituted and does not offend the provisions of the Fraudulent Assignments Act 1736, the assets within it ought not to be open to attack. Add to this the provisions of Trusts Act 1995 and there is a substantial body of law in favour of establishing strong family trusts in the Isle of Man.

No trust or disposition to which Trusts Act 1995 applies, is void, voidable, liable to be set aside or will be held defective in any fashion, and the capacity of any Settlor of such a trust or disposition will not be questioned by reason that:

  1. the law of any foreign jurisdiction prohibits or does not recognise the concept of a trust; or
  2. the trust or disposition:
    1. avoids or defeats any right, claim or interest conferred by a foreign law upon any person by reason of a personal relationship to the Settlor or by way of heirship rights; or
    2. contravenes any rule of foreign law or any foreign or judicial or administrative order or action intended to recognise, protect, enforce or give effect to such a right, claim or interest.

(Section 5)


A Manx trust is unlikely to suffer a successful attack if:

  • the Settlor is over 18 and is not suffering any mental disability, regardless of his nationality
  • the Settlor is solvent at the time the trust is created and remains solvent afterwards
  • the Settlor does not intend to defeat foreseeable creditors

Subject to this the Settlor is free to choose whomever he or she pleases as beneficiaries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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