Isle of Man: Insolvency Update - November 2008

Last Updated: 12 November 2008
Article by Robert Long

As the global economic storm continues to rage, in a timely court judgment the Isle of Man Court has recently reiterated its willingness to give assistance in cross border insolvency situations. For the first time the Manx Court has recognised the appointment of English company administrators. Given the current financial climate it is likely that such recognition and others like it will be invoked repeatedly in the coming months.

In a judgment delivered on 21 August 2008, (In re MK Investments Limited and others Petition of Bradney and others CP2008/60) the Manx Court considered the request of administrators of MK Investments Limited and MK Aircraft Leasing Limited that their appointments be recognised on the Island. The administrators had been appointed on 10 June 2008 pursuant to the provisions of the (United Kingdom) Insolvency Act 1986. The MK companies, which were incorporated in the Isle of Man but carried out business in England, had fallen into financial difficulties and could no longer meet their liabilities as they fell due. Consequently, the companies resolved to enter into administration pursuant to the provisions of the 1986 Act.

Schedule B1 of the Act provides that the primary goal of an administration is to rescue the company as a going concern, failing that the aim is to achieve a better result for the company's creditors than would be likely if the company was wound up. In the event that the two previously mentioned purposes prove impossible, the final objective of an administration is to realise the property of the company in order to make distribution to one or more of the company's secured or preferential creditors.

The MK companies retained assets on the Isle of Man in the form of monies held in certain bank accounts. The provisions of the Insolvency Act 1986 do not have extra-territorial effect on the Isle of Man and hence the powers of the administrators did not extend the Island to vest such assets in them.

The Isle of Man has no statutory means (equivalent, for example, to section 426 of the 1986 Act) providing a direct mechanism for recognising a person or persons empowered under foreign bankruptcy law to act on behalf of an Isle of Man insolvent company (whether this person is a liquidator, administrator or otherwise) in corporate insolvency cases. The Isle of Man Court, therefore, considered the request on the basis of common law.

Within his judgment Deemster Doyle had regard to the well known principle of private international law that countries will ordinarily recognise the status of a insolvency officer appointed in another country. The Deemster found that there were "no reasons to justify a refusal to grant recognition and assistance in this case". The Court ordered the recognition of the appointment of the administrators, including an express recognition of all their powers as administrators set out in Schedules 1 and B1 of the Act. The Order of the Court also provided that the moveable property held by the companies in the Isle of Man vested in the administrators. The banks, at which the companies held accounts, were specifically directed to recognise the appointment of the administrators.

The decision represents the latest in a long line of judgments in which the Manx Courts have utilised the common law to provide co-operation to other jurisdictions in the field of cross border insolvency. Despite the absence of a statutory empowerment for the direct recognition and assistance, the Manx Court has been at the forefront of forming the principles of common law relating to cross-border corporate insolvency culminating in the Privy Council decision of Cambridge Gas Transport - v – The Official Committee of Unsecured Creditors of Navigator Holdings Plc and others [2006] UKPC 26. In Cambridge Gas Transport the Privy Council set out the boundaries by which courts could give assistance in common law corporate insolvency situations pursuant to a letter of request at the request from a foreign court. When considering the limits of the assistance that a court could give the Privy Council declared whilst it was doubtful that assistance could take a form which was alien to the court, "the domestic court must at least be able to provide assistance by doing whatever it could in the case of a domestic insolvency".

Whilst it is true the Manx Court would not have ordered the administration of the MK companies the appointment of a liquidator, whether with restricted powers or otherwise, would have been an available option had the companies not have pursued administrations in England.

The judgment in MK Investments Limited and MK Aircraft Leasing Limited will remove any uncertainty as to the ability of the Manx Court to recognise and give assistance to off-Island administrators. This new cannon to the Manx Court's armoury of judicial assistance may well be engaged in the ensuing months of financial uncertainty. In recent years the Courts of the Isle of Man has emphasised the importance of the Island's role in assisting the international community and, where appropriate, developed Manx common law to enable it to do so. Economic gloom may abound, but in terms of cross border judicial co-operation those seeking assistance from the Isle of Man may consider they have "never had it so good...."

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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