Current Regime

Companies incorporated outside the Isle of Man carrying on business in the Island which have established a place of business in the Isle of Man, are currently registered under Part XI of the Companies Act 1931 (Part XI). Since first enactment in 1931, the provisions of Part XI have 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 constitutes 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, rather than having to undertake service out of the jurisdiction or costly proceedings elsewhere. Plainly, in a small jurisdiction the opportunity for fly-by-night operators is considerable and Part XI goes some way to controlling foreign business activity.

However, Part XI has always been difficult to interpret. The expression "establish a place of business" is difficult to construe and other than the deeming provision mentioned above, little assistance has been available to the practitioner, though the Treasury does have power under Part XI to prescribe by regulations what activities represent the establishment of a place of business. To date no regulations have been made.

Over the years, detailed requirements have been included in Part XI and case law has accumulated, rendering filing requirements almost as onerous as for a company incorporated in the Isle of Man with key concepts revealed in case law difficult for corporate service providers to access.

The Foreign Companies Bill 2013 (Bill)

The Bill purports to be a radical overhaul of Part XI; however, a number of provisions are still referential. Take the provisions in Part III of the Companies Act 1931 (1931 Act) (Registration of Charges); this still applies under the new regime so foreign companies registered under the new provisions will remain subject to the application of Part III, without any policy change having been made. It is worthy of note that the United Kingdom equivalent legislation has abolished the requirement for foreign companies to register charges. Similarly, Part X of the 1931 Act (Winding up of Unregistered Companies) must still be referred to in order to establish how such a company can be wound up.

The Bill continues to apply to foreign companies in the usual sense and now also to other analogous entities having legal personality such as foundations and limited partnerships with separate legal personality; indeed any entity with a separate legal personality not incorporated in the Isle of Man. The Treasury also has the power to add to the list of entities so that with every newly created entity with legal personality, the opportunity for registration arises. There is also the 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 Bill apply to it.

The Bill helpfully lists circumstances when a foreign company is not, by reason only of any one or more of those circumstances applying, to be treated as carrying on business from an established place in the Island; these circumstances are as follows:

  • Being party to, or settling legal proceedings;
  • Holding meetings or carrying on activities which relate only to its internal affairs;
  • Maintaining a bank account;
  • Purchasing or investing in assets (except in land in the Isle of Man);
  • Selling its assets;
  • Holding property (except land in the Isle of Man);
  • Charging its property;
  • Incurring debt;
  • Collecting monies owing to it;
  • Enforcing its legal rights; or
  • Receiving services which –

– are provided by the holder of a licence issued under section 7 of the Financial Services Act 2008 whose licence permits the holder to carry on the regulated activity within the meaning of section 3(1) of that Act of providing corporate services; and

– are corporate services for the purposes of that Act.

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 Bill 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.

Although the Bill has gone some way to clarify when a foreign company is not to be treated as carrying on business from an established place in the Island, there is still ambiguity over what actually constitutes an "established place of business" with the term remaining undefined. Interested parties who do not wish to register will still have to seek legal advice, as they would have done under Part XI, on the likely interpretation of particular facts relating to a foreign company doing business here.

Applications for registration

An application for registration is to be made within one month of the legislation applying to it; any notification of any change of any particulars required under the legislation is also to be filed within one month of the event's occurrence. A foreign company which makes an election to register under the Bill is required under Clause 7 to make an application within one month of that election. This clause is rather ambiguous in that there are no provisions for the foreign company to notify the Department of Economic Development (Department) of the election so time will only begin to run when the applicant itself decides it should run. It would seem that an election being subjective, it could be revoked if not notified to the Department, thereby suspending any lapse of time. It may well be that regulations will clarify this procedure.

The Bill enables the publication of "approved forms" for the purpose of submitting information required under the Bill. The Bill also introduces a power allowing the Department to refuse to register documents in certain circumstances, this includes where a document does not comply with the legislation or the regulations made under it. This forcefully suggests that an application or other filings not made in the approved form will be refused. However, practitioners can continue to take comfort from section 42 of the Interpretation Act 1976 which states that a form will not be invalidated by virtue of it not being in the prescribed form, provided it does not materially affect the substance of the form. It is surprising that this overriding provision was not reflected in the Bill, which otherwise suggests the approved form is mandatory. Under the same power in the Bill, where a document is rejected it will be treated as not submitted, this makes it a critical task to ensure that the application for registration and any other documents to be submitted are in perfect compliance with the provision, so as not to be in default of the one month filing requirement. Strictly interpreted, a clerical error on a form could result in a form filed in time being treated as not submitted when time expires. There is no express power for the Department to make concessions in this regard and in principle the penalties contained in the legislation will apply.

A noticeable difference between Part XI and the Bill is the reduction in the amount of information that must be submitted. It will no longer be a requirement for foreign companies to submit their constitutional documents. The focus instead will be on the registered details of the company in its place incorporation; company name and number, jurisdiction of incorporation, date of incorporation as well as the address of the established place of business or address of land it holds in the Island. The reasoning behind this appears to be that the register will clearly identify the jurisdiction of incorporation of the company so any information relating to the internal constitutional details of the company will be obtainable from that jurisdiction given the availability of online access. This does assume that all jurisdictions maintain such information online and in the English language. Whether persons dealing with foreign companies registered under the new legislation will be adequately protected is debatable.

Under the Bill there is still the requirement for the foreign company to make an annual return, failure to submit a return within the required time represents an offence under the Bill and the foreign company may be removed from the register.

The way in which a foreign company can be removed from the register has been streamlined; a foreign company may be removed from the register by the Department where the company ceases to be a foreign company to which the legislation applies, or where the company fails to submit an annual return within four months after the company's return date. If a foreign company is removed from the register, the Department must publish a notice of the removal. The previous lengthy process requiring the Department to send a series of letters to the foreign company in default has been removed.

Service of Process

As before, a foreign company is required to make provision to ensure that it is able to accept service of process and any notices required to be served on the company. Oddly, a significant change is that a foreign company which holds land in the Isle of Man will not necessarily be considered to have established a place of business in the Isle of Man but will still be required to register. In those circumstances the foreign company is only required to provide an address outside of the Isle of Man for service. This change has not been reflected in the proposed amendment to the Rules of High Court of Justice (Rules) contained in the Schedule to the Bill. The amendments to the Rules 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 consider foreign companies registered by reason of purely holding land in the Island which do not have a place of business. A creditor would have to obtain service out of jurisdiction upon that overseas address thus returning the legislation to the position to that which prevailed before the Companies Act 1968, save that now the company's identity and foreign address will be registered. This seems unduly generous to foreign companies owning land here.

Notification of Events

The Bill makes provision for the notification of certain events; these include the usual administrative notifications you would expect, such as change of address. It also requires notification of the appointment of a liquidator or receiver over assets under the laws of the jurisdiction outside the Island. There is no similar provision for notification of the appointment of a receiver under Isle of Man law and the relevant notification provisions of the 1931 Act do not apply. If the Department wanted to provide a better level of consumer and creditor protection it would be beneficial for affected parties to know if a receiver had been appointed over that entity or its assets under the laws of any jurisdiction. Section 238 of the 1931 Act, as applied by Part X of the 1931 Act (Winding up of Unregistered Companies) requires a liquidator to register a notice of his appointment with the Department within 21 days after his appointment. The referential nature of this requirement is unfortunate. It would have been easy to include both notifications in the Bill.

Registered Name

The registered name of the foreign company, as under the current regime, is regulated by the Company and Business Names etc. Act 2012. The entry on the register will be the same name as it is incorporated under but in some cases where the name is considered inappropriate or the name already exists on the register the Department may require the foreign company to register a different name.


There is the addition of an appeal procedure enabling a person who is aggrieved by any decision of the Department made under the legislation to appeal to the High Court within one month after the date of the decision being made. This is to be welcomed. It is to be hoped that document rejection does not cause an early flurry of appeals.

The penalties under the Bill remain unchanged though there is the addition of a defence where a person took all reasonable precautions and exercised due diligence to avoid committing the offence. Where a company has been removed from the register it may make a further application for registration accompanied by the outstanding annual return and any prescribed fees. A foreign company that fails to re-register commits an offence, it is yet to be seen how this will be prosecuted since it is unlikely that there will be anyone in the jurisdiction. Whether there would be an appetite for prosecuting where criminal proceedings have to be served overseas remains to be seen.

Other points to note

A new addition to the Bill is the ability of the Treasury to make regulations requiring a foreign company to make trading disclosures on premises and in trade documentation. This may represent a hidden cost which will only be revealed when the regulations are made. There is no express requirement for the Treasury to consult on these particular regulations.

The Treasury's general regulation-making powers have also been increased enabling them to make regulations about the operation of any provision of the Bill. These powers are extensive and notwithstanding that it is required to consult "such persons as it considers appropriate" it is unfortunate that its powers of amendment will not be subject to legislative scrutiny. Under these powers, there are almost unlimited opportunities to change the fundamentals of the legislation; Tynwald may only approve or reject subordinate legislation, it has no power to amend.

When the Bill comes into operation foreign companies which are already registered under Part XI will be treated as registered under the new legislation. However, there is as yet no guidance to help with the transition. For example, under Part XI there is a requirement for a foreign company to have a person in the Isle of Man who is authorised to accept service and a "designated officer" in the Isle of Man to deliver to the Department documents and particulars for registration. Under the Bill a foreign company is only required to have a person in the Isle of Man authorised to accept service; it does not make provision for what happens to the position of the "designated officer". It is hoped that the Treasury will exercise its power to make regulations to deal with this and other transitional matters of concern to foreign companies moving from Part XI to the new regime.


Generally the Bill represents a valiant attempt to reduce red tape. However, it remains to be seen whether, in removing the hurdles of Part XI, a different set have been put in their place.

At the time of writing this Article the Bill is approaching its third reading stage in the Legislative Council.

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.