The Companies and Business Names etc Bill 2012 (the "Bill") has recently received its third reading in the Legislative Council.
The Bill has been introduced in response to a recommendation from the International Monetary Fund (the "IMF") as part of their 2009 report into the Isle of Man's compliance with the Basal Core Principles for Effective Banking Supervision. Whilst the IMF did not comment generally on the Isle of Man's existing regime in respect of name approvals for bodies corporate and unincorporate, they did comment on the lack of regulation regarding the use of the word "bank" and "banking" in business and company names. It was suggested that, in order for the Isle of Man to be strictly compliant, the use of the term "bank" should be expressly limited to licensed entities.
The rationale is that the protection of the term "bank" and derivations is a matter of consumer protection. As such it was recommended that the use of any terms which indicate or which could reasonably be understood to indicate that a person, business or company is a bank, banker or carrying on banking business should be restricted to appropriately licensed entities unless expressly authorised otherwise by the Companies Registry.
The Bill also provides an opportunity to review, consolidate and update the existing regime in respect of name approval which is currently contained within several different Acts of Tynwald, into one central piece of legislation. Generally speaking, with the exception of two new powers, the Bill does not bring a considerable amount of change to the existing regime. Many of the existing powers are replicated in the Bill and certain current conventions and guidance are given certainty by being placed on a statutory footing.
The Department of Economic Development ("the Department") has statutory authority (under a variety of legislation depending upon the entity which is to be incorporated, change its name or to be registered) to refuse to register a name or change of name which, in its opinion, is undesirable. This authority is delegated to the Companies Registry. Undesirable means misleading, offensive or in any way likely to be harmful to the public.
The Department also has authority to publish guidance notes to set out the criteria which it applies in determining whether a name is undesirable or not. However the guidance note is just that, guidance, and does not have any binding force. Under the current guidance, names which are likely to be refused include those which:
- are identical to a company or business name already registered in the Isle of Man;
- are identical to a company known to exist elsewhere;
- are similar enough to an existing company or business name already registered in the Isle of Man or known to be registered elsewhere to cause confusion in the minds of those who might deal with the other business;
- are descriptive of a business activity but not distinctive;
- are grandiose and imply the company is in some way pre-eminent in its field;
- are not conducive to the good name of the Isle of Man;
- contain sensitive words such as "Bank" or "Building Society".
- imply the company will be undertaking a regulated activity, without holding the appropriate licence;
- contain words which imply royal patronage or connection, e.g. "Royal", "Royalty", "King", "Queen", "Prince", "Princess", "Windsor";
- do not contain an approved suffix, where one is required;
- were used by a company that has been struck off or dissolved in the preceding 5 years;
- would indicate that the company may be engaging in illegal activities;
- are registered for the main purpose of obtaining money (or other consideration) from a person who has goodwill in the same or sufficiently similar name elsewhere;
- imply a relationship or association with a Government department or statutory board.
Sensitive words and expressions are those which imply business pre-eminence, a particular status or involvement in a regulated activity.
In considering whether names are too similar, the Department will take account of all factors, which may be considered to suggest similarity and whether or not those factors are likely to lead to confusion being caused to the public. These will include, for example, the nature and location of the businesses concerned.
The Bill applies to companies to which the Companies Acts 1931-2004 apply, companies to which the Companies Act 2006 applies, limited liability companies, foundations, limited partnerships, societies to which the Industrial and Building Societies Acts 1892-1955 applies and a firm or person required to be registered under the Registration of Business Names Acts 1918 and 1954.
Responsibility for name approval remains with the Companies Registry. However, as there are currently differing terms in the various acts for the body responsible for name approval the body will now be termed the 'appropriate name approval authority' (the "Authority") to ensure there is one consistent term going forwards.
The circumstances where it is necessary to obtain approval remain the same, namely on establishment, incorporation, registration and on application to change the existing name.
The Authority will have the same powers as it does currently, namely the power to approve a name unconditionally, approve a name subject to conditions or to refuse a name. The Authority will continue to have power to attach conditions to its approval of a name and also to vary or revoke any conditions to its approval of a name. The power to make a direction for a name to be changed if the Authority has reasonable grounds to consider that the name contravenes legislation or is too similar to another name or is undesirable also remains.
In relation to restricted words or phrases featuring in name applications, the convention to consult with interested parties remains but has been given certainty by being placed on a statutory footing. The Authority must now obtain written consent following consultation with specified persons.
The ability to reserve a name for a period of 3 months has remained but has also been placed on a statutory footing. However, the option to rollover this approval has been altered to avoid what has been felt to be an abuse of the system and a waste of resources for the Companies Registry. It has been remarked that the present system of continued rollover of name approval with no application for incorporation allows, in effect, persons to have shelf companies without paying for them. Whilst it is still possible to apply to extend the name approval for a further 3 months, this must be done by making a further formal application.
A person who is aggrieved by the decision of the Authority has the right of appeal to court, as they do under the present system. It has been suggested that a new tribunal ought to have been considered as a route of appeal due to the time and cost implications of appealing to the courts. However, as this would involve the creation of a new tribunal it was considered to be appropriate to continue with the route of appeal being to the courts.
The Bill gives the Authority an ultimate discretion to approve a name which might otherwise be refused because it contains a restricted word or phrase. Therefore, it is still possible for a company or business to have the word 'bank' in its name, even if it is not conducting banking business. As a safeguard, such names which contain restricted words or phrases which give or may give a misleading indication of the nature of their activities would then be entered onto a public register which would be available electronically through the Companies Registry website. This is designed to protect the public from being misled whilst still affording legitimate companies the option of having 'bank' in their name. The other new power is the power to introduce a fee payable to the Authority on application for the reservation of a name and on application for name approval. However, this power is an enabling power and it has been confirmed that there are, currently, no plans to introduce fees. This maintains the status quo, for the time being.
As originally appeared in the Isle of Man Regulatory Update – February 2013
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