In the recent case of Lombard Manx Limited v The Spirit of Montpelier Limited (CHP 2014/23), the Isle of Man High Court considered the law in respect of when a creditor will be entitled to a winding up order "virtually as of right" against a defaulting debtor.

Stephen Dougherty from leading Isle of Man law firm Dougherty Quinn ("DQ") acted for Lombard Manx Limited in the case.


The Claimant sought a winding-up order against the Defendant company on the basis that the Defendant was unable to pay its debts. Some weeks prior to the hearing, the Claimant had served a statutory demand upon the Defendant (the "Debt"). The Debt represented the sum outstanding pursuant to a loan agreement between the parties. As security for the Debt, the Claimant obtained a ship mortgage over a yacht owned by the Defendant, a personal guarantee from the Defendant's ultimate beneficial owner and a second charge over the ultimate beneficial owner's principal residence.

Legal Issues

In deciding whether or not to make a winding-up order, the Court considered section 163 of the Isle of Man Companies Act 1931, and in particular the wording in section 163(1)(1) which states that a company shall be deemed unable to pay its debts if it has failed to secure or compound the debt to the reasonable satisfaction of the creditor.

The Defendant submitted that the Debt was secured to the creditor's reasonable satisfaction, because of the ship mortgage, the personal guarantee and the second charge over the property. The Claimant submitted that, as an undisputed creditor, case law established that it was entitled to a winding-up order "virtually as of right" and argued that in any event it was not satisfactorily secured, because:-

1. the yacht had fallen considerably in value since the ship mortgage was executed; and
2. it would be extremely costly and time-consuming to take possession of the yacht and/or enforce the second charge over the property.


The Court held that the Claimant had reasonable concerns regarding the reduced value of the yacht, as although the Claimant had security over the yacht, its value was less than the Debt. The Court also noted that the Claimant would have difficulty enforcing its security in the absence of the appointment of a liquidator, and recognised the difficulties associated with enforcing the personal guarantee as the guarantor (the ultimate beneficial owner of the Defendant) did not appear to be ready and able to discharge the Debt.

The Court considered the judgment of Neuberger J in Re Demaglass Holdings Limited ([2001] BCLC 633), in which Neuberger J held that "at least in the absence of a good reason, a creditor of a company who has not been paid is entitled to a winding up order virtually as of right."

The Court also referred to the judgment of Deemster Kerruish in Lehman Brothers Inc v Navigator Gas Management Limited (2005) in which Deemster Kerruish followed the decision in Re Demaglass and stated that the courts will have greater regard to the views of independent creditors as opposed to creditors who are connected to the debtor company. It was also stated that the creditor need only establish that some sort of benefit will accrue if a winding-up order is made, but the test is a low one and the creditor need only show a reasonable possibility of some advantage.

The Court held that the Claimant was entitled to a winding-up order and that there were no grounds for refusing to grant the order. The Defendant was an undisputed debtor of the Claimant and the Claimant had not paid the Debt, which was due and owing.

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.