Isle of Man: Insolvency Update: Has The Privy Council Turned The Isle Of Manís Chief Justice Into A Timorous Soul?

Last Updated: 17 February 2015
Article by Adam Killip

In the recent case of Lombard Manx Limited v The Spirit of Montpelier Limited (CHP 2014/23), the principal question for the Isle of Man High Court (His Honour Deemster Doyle, the Island's Chief Justice) was whether the Court had jurisdiction at common law to rescind a winding-up order. In concluding that the Court did not have such jurisdiction, and that to grant the relief requested by the applicants would be an inappropriate development of the common law of the Island, His Honour echoed the famous speech of Lord Denning in Candler v Crane Christmas and Co [1951] 2 KB 164 by declaring his intention to be a "timorous soul" rather than a "bold spirit". DQ's Stephen Dougherty and Adam Killip acted for Lombard Manx Limited in the case.

Facts

On 8 May 2014, Lombard Manx Limited ("Lombard") obtained a winding-up order against The Spirit of Montpelier Limited (the "Defendant"), having served a statutory demand (the "Demand") upon the Defendant in February 2014. The Demand had remained unpaid at the winding-up hearing on 8 May 2014 (the "Hearing") and, at the Hearing, the Court found that the Defendant had failed to secure the debt to Lombard's reasonable satisfaction (pursuant to section 163(1)(1) of the Companies Act 1931). The Demand was based on an overdue loan facility provided by Lombard to the Defendant in connection with the acquisition of a yacht, over which Lombard had a first priority ship mortgage (the "Mortgage").

The Defendant's ultimate beneficial owner (together with a number of his connected companies which claimed to be creditors of the Defendant) (the "Applicants") brought an application for the winding-up order to be revoked on the basis that at the date of the Hearing, the sum owed under the Demand had in fact been secured to Lombard's reasonable satisfaction (essentially, by virtue of the existence of the Mortgage security).†

Legal Issues

The principal legal issue for the Court to determine was the question of whether or not the Court has jurisdiction to revoke its own sealed winding-up order (the "Jurisdiction Point"). Following on from this, if the Court did have such jurisdiction, should it exercise it on the facts of the case?

There was no specific authority nor any decided cases in Isle of Man law on the Jurisdiction Point. The Applicants argued that the Court should apply English law (specifically Rule 7.47(1) of the Insolvency Rules 1986) (the "Insolvency Rules") which gives the English High Court power to review, rescind or vary any order it has made in insolvency proceedings. DQ's Stephen Dougherty, however, argued on behalf of Lombard that the Court should look to the position in England prior to the Insolvency Rules 1986 coming into force, because this represented the true position in Isle of Man law, which was that an order could only be revoked if it could be described as a "nullity" (per Re Calmex Ltd [1989] 1 All ER 485 and Re Intermain Properties Ltd [1986] BCLC 265). Lombard submitted that the winding-up order in this case was not a nullity.

In coming to its decision, the Court reviewed other Commonwealth case law including decisions from New Zealand and Australia. Notably, the Court also considered the recent Privy Council decision in Singularis Holdings Limited v PWC [2014] UKPC 36 ("Singularis") which related to an appeal from Bermuda.

Decision

Following a detailed review of Commonwealth authorities, the Court found that it did not have jurisdiction to revoke its own winding-up order, and that even if it did, it would not have exercised that jurisdiction in this case.

The Court expressed the view that although it is unfortunate that Isle of Man law does not have an equivalent provision to Rule 7.47 of the Insolvency Rules, it is not for the judiciary to create an inherent or reserve power simply because this would be desirable. The Court should not attempt to legislate from the bench. In the absence of an express power of revocation, the Applicants should have applied for a stay of the winding-up, however on the facts of the case the chances of such an application succeeding were expressed to be slim.

The Court held that, even if it had jurisdiction, it would not have exercised it on the facts of the case. Since the winding-up order had been made, fresh evidence had come to light about the value of the Defendant's sole asset (the yacht). The evidence suggested that the yacht had decreased in value since May 2014. The Court found that the fresh evidence reinforced the winding-up order rather than undermined it. The debt was not secured to Lombard's reasonable satisfaction. The winding-up order was not a nullity and should not therefore be set aside.

From bold spirit to timorous soul?

The tenor of the judgment clearly reveals that His Honour Deemster Doyle wanted to identify a jurisdictional basis in Isle of Man law to revoke winding-up orders. His Honour reviewed a New Zealand case (Bridon New Zealand v Tent World [1992] 3 NZLR 725) in which the judge declined to follow English authorities and held that the New Zealand court had jurisdiction to rescind a winding-up order. Despite this, His Honour was much influenced by Singularis in holding that it would not be appropriate to "legislate from the bench" by importing provisions of the Insolvency Rules into Isle of Man law. His Honour said:

"I have, albeit with considerable reluctance, concluded that [Isle of Man] common law does not provide this court at first instance with jurisdiction to rescind a winding up order once it has been sealed or otherwise perfected. It is unfortunate that we do not have the equivalent of Rule 7.47(1) of the [Insolvency Rules]."

His Honour added:

"It is not for me at first instance to create an "inherent" or "reserve" power... simply because it would be desirable to have such a power... having had the advantage of recent guidance from some members of the Judicial Committee of the Privy Council in [Singularis] I will on this occasion be a "timorous soul" rather than a "bold spirit"...

For an example of His Honour's previous willingness to be a "bold spirit", see the judgment in Brittain v Impex Services and others (CP 2003/96) (26 January 2004).

His Honour's judgment has been appealed by the Applicants and is expected to be heard by the Staff of Government Division (the Isle of Man's Appeal Court) in May 2015.

DQ's Expertise

For more information on Isle of Man insolvency law and DQ's expertise in this area, please contact Stephen Dougherty, Simon Heggs or Giles Hill. For more information on BVI insolvency law, please contact Stephen Dougherty.

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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