Isle of Man: New IOM Regime For Foreign Companies

Last Updated: 26 November 2014
Article by Andrew Webb

Before the Foreign Companies Act 2014 (Act) came into force on 1 July 2014, companies incorporated outside the Isle of Man carrying on business in the Island which had established a place of business in the Isle of Man, were registered under Part XI of the Companies Act 1931 (Part XI).

The provisions of Part XI had been amended from time to time to legislate against perceived abuses by foreign companies. For example, the deeming requirement enacted by the Companies Act 1968 that the holding of land constituted the establishment of a place of business dates back to the massive residential developments of the late 1960s when details of corporate absentee landowners were required. It was also designed to ensure so far as possible that creditors had a local remedy, by requiring the name and address of a local person for service of process and notices. Plainly, in a small jurisdiction the opportunity for fly-by-night operators is considerable and Part XI went some way to monitor foreign business activity. However, Part XI was difficult to interpret and there was a clamour for its reform.

The Foreign Companies Act 2014

The Act purports to be an overhaul of Part XI; however, a number of provisions are still referential. For example, the registration of charges provisions in Part III of the Companies Act 1931 (1931 Act) still apply without any policy change. It is noteworthy that the United Kingdom equivalent legislation has abolished the requirement for foreign companies to register charges. The Act applies to foreign companies as well as foundations and limited partnerships; indeed any entity with a separate legal personality not incorporated in the Isle of Man. There is also the novel addition of an election, allowing a foreign entity which is not conducting business from an established place of business or holding land in the Isle of Man but which has established another nexus with the Island, to elect that the provisions of the Act apply. The Act helpfully includes a list of circumstances of when a foreign company is not, by reason only of one or more of those circumstances applying, to be treated as carrying on business from an established place in the Island.

Oddly, these same circumstances will also permit a foreign company to claim that it has established a nexus with the Isle of Man and thereby allow it to elect to be treated as a company to which the Act applies and make an application for registration. This is counter-intuitive, the listed circumstances not being sufficient in themselves to require registration and yet sufficient to establish a right of election to register. The expression "established place of business" which has caused so much difficulty over the years remains undefined in the Act.

Applications for Registration

Applications for registration must be made within one month of the legislation applying to an entity. A foreign company which chooses to elect to register under the Act where registration is not mandatory is required to make an application within one month of that election. The nature of an election is that time will only begin to run when the applicant itself decides it should run.

The Act introduces a power allowing the Department of Economic Development (Department) to refuse to register documents. This includes where a document does not comply with the legislation or the regulations made under it. Where a document is rejected it will be treated as not submitted, this makes it critical to ensure that the application for registration and any other documents submitted are formally correct, so as not to be in default of the one month filing requirement. There is no power for the Department to make concessions for clerical errors giving rise to rejection and in principle the penalties contained in the legislation will apply.

Foreign companies are no longer required to submit their constitutional documents, only basic registered details of the company; company name and number, jurisdiction of incorporation, date of incorporation and the address of the established place of business or address of land it holds in the Island. This may make enquiries difficult for the creditor or consumer who needs further information from abroad. A foreign company is still required to make an annual return, failure to submit within the required time represents an offence and the foreign company may be removed from the register.

Service of Process

With one exception, a foreign company must ensure that it is able to accept service of process and notices in the Island. Oddly, a significant change is that a foreign company which holds land in the Isle of Man is no longer deemed to have established a place of business in the Isle of Man but is still required to register as a foreign company. In those circumstances it is required either to provide an address in the Isle of Man or by way of exception to the rule, outside of the Isle of Man for service. This change has not been reflected in the amendments to the Rules of High Court of Justice (Rules) contained in the Schedule to the Act. These provide that where a foreign company has no address for service, a document must be left at the address of the person who is authorised to accept service under the legislation or at any place of business within the jurisdiction. This does not catch foreign companies registered by reason of holding land in the Island which according to the Act do not have a place of business and have not provided an address on the Island. A creditor would therefore have to obtain service out of jurisdiction upon the overseas address, returning the legislation to the position which prevailed before the Companies Act 1968. This seems a retrograde step for creditors or consumers where foreign companies owning land in the Island choose not to provide a local address for service.

Notification of Events

The Act makes provision for the notification of certain events; such as change of address. It also requires notification of the appointment of a liquidator or receiver over assets under the laws of a jurisdiction outside the Island. Under local law, section 238 of the 1931 Act, as applied by Part X (another referential provision) requires a liquidator to register a notice of his appointment with the Department within 21 days after his appointment. There is no similar provision for notification of the appointment of a receiver appointed under Isle of Man law. Better consumer protection would be achieved if an appointment had to be notified in all cases, irrespective of the jurisdiction in control of the appointment.

Conclusion

It remains to be seen whether creditor and consumer rights have been adequately protected under the new regime in pursuing the endeavour to reduce administration for foreign companies.

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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