The status of the Isle of Man as a cooperative, transparent and internationally responsible jurisdiction has been recognised by the Organisation for Economic Co-operation and Development ("OECD").

The White List

On 2nd April, the G20 leaders met in London to discuss the current economic crisis and "tax havens" were firmly on the agenda. A number of agreements were reached by the G20, including an agreement to take action against noncooperative jurisdictions, including "tax havens", and to stand ready to deploy sanctions to protect public finances and financial systems.

The G20 made reference to the report, issued by the OECD on the same day, detailing the progress of 82 jurisdictions in implementing internationally agreed tax standards on transparency and exchange of information. The Isle of Man, along with jurisdictions such as the UK, the US, France and Germany, was included on a white list of jurisdictions that have substantially implemented the internationally agreed tax standard.

The report also included a list (the "grey list") of "tax havens" and other "financial centres" that have committed to the internationally agreed tax standard, but have not yet substantially implemented it and a list (the "black list") of jurisdictions that have not committed to the internationally agreed tax standard. Subsequently those jurisdictions initially placed on the black list have been moved to the grey list following representations to the OECD.

Background As far back as 2000 the Isle of Man made a commitment to the OECD to work with it in addressing harmful tax practices by improving transparency and establishing effective exchange of information on tax matters. In 2002, the OECD produced a model bilateral tax information exchange agreement to promote international co-operation in tax matters through the exchange of information. The model agreement was developed by an OECD working group to which the Isle of Man contributed.

The Isle of Man followed through on its commitment to the OECD and signed its first tax information exchange agreement ("TIEA") with the US in 2002. A further TIEA with the Netherlands was signed in 2005, followed by seven TIEA's with the Nordic countries in 2007. Since then the Island has signed TIEA's with Iceland, Ireland, the UK, Australia, Germany and France, bringing its total number of TIEA's to 14, 12 of which are with OECD member countries. There are several more TIEA's in the pipeline. The Isle of Man has signed more TIEA's than any of its counterparts and the Island's efforts have not gone unnoticed by the OECD. The Island's 12th TIEA was described by the OECD as an important milestone in implementing the Island's commitment to international co-operation.

What this means for the Isle of Man?

The Island has worked hard to ensure that it is not regarded as a tax haven with harmful tax practices and its inclusion on the most recent OECD white list is recognition of its efforts. It also demonstrates that the Isle of Man is a co-operative and transparent jurisdiction which takes its international responsibilities very seriously.

By being pro-active and entering into TIEA's with other jurisdictions, the Isle of Man is currently ahead of the game.

Businesses wishing to relocate to a white list jurisdiction can relocate to the Isle of Man relatively simply under local transfer of domicile legislation. The legislation requires that reciprocal legislation is in place in the other jurisdiction and requires an application to be made to the Isle of Man Companies Registry.

The Future

The Island is not complacent about its future and recognises the need to ensure that it maintains its international standing.

In view of the current economic climate, international financial services centres will remain in the spotlight and will continue to have their financial services regulation, anti-money laundering legislation and financial stability assessed by international organisations against internationally accepted benchmarks.

In November last year the UK Government announced an independent review of its Crown Dependencies (which includes the Isle of Man) and Overseas Territories. The review will cover issues such as financial supervision and transparency, fiscal arrangements, financial crises management and resolution arrangements and international cooperation. The review will not include the Isle of Man's constitutional relationship with the UK.

Such external reviews are an opportunity for the Island to demonstrate that it is a well regulated, financially stable and cooperative jurisdiction that complies with international standards.

The Enforcement Regime for Holders of Floating Charges in the Isle of Man


The Isle of Man remains a jurisdiction in which it is still possible to give primacy to secured creditors over unsecured creditors, whether they are preferred by statute or not. There are no administration procedures in Isle of Man insolvency law, there being no local equivalent to the provisions in the Insolvency Act 1986 of Parliament ("IA 1986").

Administration under the IA 1986 can be distinguished principally from administrative receivership (the IA 1986 equivalent of receivership under a floating charge) in that it is a collective insolvency procedure involving all creditors and giving all creditors a say. Receivership, by contrast gives primacy to the secured creditor.


The right of a lender to appoint a receiver without recourse to the courts dates to the nineteenth century when floating charges were first designed. Manx law followed English law in this regard. In the Isle of Man, receivership is still a quick and easy procedure to initiate for any lender whose security is backed by a floating charge, enabling a rapid response to a perceived crisis in the company's business. It is an effective way for secured creditors (holding both fixed and floating charges) to exercise their contractual right to realise their security and encourages secured lending to business. Receivership is not, however, a collective procedure and the holder of a floating charge can initiate it at any time the contract with the borrowing company allows. A receiver owes a duty of care to his appointor, but only limited legal obligations to others.

In the UK, the IA 1986 provides that the powers of an administrative receiver, as set out in the instrument of debenture, include statutory powers to, amongst other things, take possession of, collect and get in the property of the company, sell or otherwise dispose of the property of the company and carry on the business of the company. In Manx law there are no such statutory powers. A Manx instrument must express in full all the powers the secured creditor would wish a receiver to be able to exercise, though referential incorporation of the IA 1986 powers is conventional.

The benefits to a floating charge holder of the ability to appoint a receiver are clear. A large measure of control is enjoyed by the floating charge holder, both before and after the appointment of a receiver. They are afforded significant protection by the law and enjoy priority in the event of insolvency relative to unsecured creditors.

The primary duty of the receiver is to exercise his powers in good faith to try and bring about a situation in which interest on the secured debt may be paid and the debt itself repaid. The good faith requirement means that the receiver must act without dishonesty, improper motive or bad faith; negligence does not automatically mean lack of good faith. Provided that the receiver can demonstrate good faith, then, subject to certain specific duties, he is entitled to sacrifice the interests of the company in pursuit of that end.

UK Enterprise Act 2002

The changes brought about by the UK Enterprise Act 2002 in adjusting the position of secured creditors as against unsecured creditors have no parallel in Isle of Man law. The UK Government's view was that, on the grounds of equity and efficiency, the balance under the IA 1986 had to be tipped firmly in favour of collective insolvency proceedings under which all creditors could participate, where a duty is owed to all creditors and under which all creditors would be able to hold the office-holder to account for his dealings with the company's assets. Administrative receivership as a remedy is now seriously circumscribed by Chapter IV of the IA 1986, as administrative receivers can only be appointed by the holders of floating charges created before 15 September 2003 and holders of charges created under other prescribed exceptions under ss. 72B—72G of the IA 1986. As a result administration has become the principal procedure for floating charge holders enforcing security in England.


In the Isle of Man the usual rule is that a floating charge holder will take subject to preferred creditors. However, it is still possible in this jurisdiction to crystallise a floating charge governed by Isle of Man law and avoid statutory preferences.

English case law construing statutory provisions similar to those in the Isle of Man, culminating in Re Brightlife Limited [1986] 3 ALL ER 673 confirmed that a debenture holder may crystallise a floating charge (by contract) at any time, converting the charge into a fixed charge so that no preferential debts are payable. In England, Parliament's intervention to reverse this contractual freedom and close the lacuna is codified by amendments to the English Companies Act 1985 and the IA 1986. Time will tell whether the Isle of Man's Parliament, Tynwald, will, in the long overdue reform of insolvency follow Parliament's lead or allow the Brightlife option to remain available to floating charge holders.

Under Schedule B1 of the Act (the "Schedule"), an administrator can be appointed by the court, the holder of a floating charge, the company in question or the directors of the company.

Appointment by the Court

An application to the court for an administration order can be made by any, all or a combination of the following: the company in question; the company's directors; or a creditor or creditors of the company. However it is usually made by the directors of the company.

The ground for the application is that the company is, or is likely to become, unable to pay its debts and that an administration order is likely to achieve one of the following:

  • rescuing the company as a going concern;
  • achieving a better result for the company's creditors as a whole than would be likely if the company were wound up; or
  • realising property in order to make a distribution to one or more secured or preferential creditors.

On a successful application, the court would make an order appointing the administrator.

Appointment by the holder of a Floating Charge, the Company or the Directors of the Company

The holder of a qualifying floating charge, the company or the directors of the company may appoint an administrator.

In all cases, the Schedule provides that the appointment of an administrator will take effect when the required documents (being the notice of appointment and the accompanying documentation prescribed by the Schedule) are filed with the court.

The appointment by the holder of a qualifying floating charge, the company or its directors does not need an order of the court—it is enough for the notice (and accompanying documentation) to be filed with the court. The prescribed form of notice provides that the only endorsement that the court will make on the form is the date and time that the notice was received by the court.

The Status of the Administrator

The Schedule provides that an administrator appointed pursuant to the provisions of the Act is an officer of the English court (whether or not he is appointed by the court). Additionally, the Schedule provides that the administrator of a company acts as its agent.

Isle of Man Case: In re MK Investments Limited and others

In June 2008 three individuals were appointed joint administrators (the "Administrators") of MK Investments Limited and MK Aircraft Leasing Limited pursuant to the Schedule by the directors of each company. The notices of appointment were dated 9th June 2008 and were endorsed by the English court on 10th June 2008. Accordingly, the appointment of the Administrators was effective under English law from 10th June 2008.

Both companies were incorporated in the Isle of Man but had their centre of main interests in England. Both companies had bank accounts in the Isle of Man. After their appointment, and in an attempt to pursue the objectives of the administration of the companies, copies of the notices of appointment were forward to the Isle of Man Financial Supervision Commission's Companies Registry in the Isle of Man.

The Companies Registry indicated that it was unable to accept the notices of appointment of the Administrators. Consequently the Administrators requested the Isle of Man court to:

  • recognise their appointment in the Isle of Man;
  • direct that the Isle of Man banks recognise their appointment; and
  • declare that all assets of the companies held in the Isle of Man vest in the Administrators.


The Isle of Man court was satisfied that it had jurisdiction to recognise and grant assistance to the Administrators in the circumstances of the case. Deemster Doyle referred to the speech of Lord Walker delivering the judgment of the Privy Council in Walker v Lundborg (judgment delivered 6th March 2008). In the speech, his Lordship stated that "under general principles of private international law, one country will usually recognise the status of a trustee in bankruptcy (or similar officer) appointed by another country, and will also recognise his title to moveable (but not immoveable) property situated in the recognising country."

The Isle of Man court was also satisfied that the appointment of the Administrators should be recognised in the Isle of Man and that the moveable property of the companies, such as the funds in the bank accounts of the companies in the Isle of Man, vest in the Administrators.

The decision is welcomed in that it removes any uncertainty as to the ability of the Isle of Man courts to recognise and give assistance to off- Island administrators. It also represents the latest in a long line of judgments in which the Isle of Man courts have utilised the common law to provide cooperation to other jurisdictions in the field of cross border insolvency. However we would question whether the judgment was needed at all in this particular case. The appointment of the Administrators was effective from the time when the notice and accompanying documents were filed with the English court. The Administrators are the agents of the companies, almost as if they were the companies' directors or a receiver. These other agents do not require the Isle of Man court to recognise their appointment and it is arguable that it was not required in this case. However, the situation may have been different if the appointment had been made by an order of the English court (as opposed to by the directors) as the order would not extend to the Isle of Man and consequently would need to have been confirmed by an order of the Isle of Man court (as an English order could not have extraterritorial effect).

In addition, as the Administrators are the agents of the companies and the assets remain the assets of the companies, it is arguable that an order vesting the assets in the Administrators was not required.

Proposed Repeal of Financial Assistance Prohibition on Companies Incorporated under the Companies Acts 1931-2004

Current Position

There is a general statutory prohibition in section 6 of the Isle of Man Companies Act 1992 (the "1992 Act") on a 1931 Act company providing financial assistance for the acquisition of shares in itself or its holding company.

Subject to a limited number of exceptions the prohibition is absolute for public companies. However, sections 7 and 8 of the 1992 Act provide a mechanism (known as the "whitewash procedure") by which private companies can provide financial assistance subject to compliance with stringent statutory requirements. To comply with the whitewash procedure the following conditions (amongst others) must be satisfied:

  • the company must have net assets which are not reduced or, to the extent that those assets are reduced, the financial assistance is provided out of distributable profits;
  • if the company is not a wholly owned subsidiary, the financial assistance must be approved by a members resolution;
  • the directors must make a statutory solvency declaration;
  • the auditors must produce a statutory solvency report;
  • the statutory declaration, auditors report and any members resolution must be filed at the Companies Registry.

Proposed Repeal of Financial Assistance prohibition

The prohibition against a private company giving financial assistance for the acquisition of shares in itself or its private holding company will be repealed when the Companies (Amendment) Bill comes into force in the next few months. Consequently, compliance with the whitewash procedure will no longer be statutorily required and the whitewash provisions will also be repealed. The prohibition will remain in place for public companies, subject to a few very limited exceptions. This repeal reflects the changes which are being introduced in England by the English Companies Act 2006.

What does the Repeal Mean?

Following the repeal, a transaction which is currently prohibited by section 6 of the 1992 Act for being financial assistance (but which would otherwise be lawful) will not be prohibited by any statutory provision or by any common law rule which pre-dated the statutory prohibition on the giving of financial assistance. However, it does not follow that transactions which are currently prohibited by section 6 of the 1992 Act as constituting financial assistance will, following the repeal, automatically become lawful—there are other general company law principles which will still need to be taken into account and which could still make the "financial assistance" unlawful.

In particular, the parties involved in the transaction (and in particular the directors of the company giving the financial assistance) will need to address the following legal issues:

No Reduction of Share Capital

It is a fundamental principle applicable to companies having a share capital incorporated under the Companies Acts 1931-2004 that such companies cannot reduce their share capital or return capital to members without complying with stringent statutory provisions set out in the Companies Acts. Accordingly, before entering into any transaction, the directors will need to satisfy themselves that the net assets of the company will not be reduced by entering into the transaction or, to the extent that they are reduced, any such reduction will be made out of the company's distributable profits.

No unlawful return of capital to member

If the transaction involves any distribution to or for the benefit of the company's members, the directors must ensure that such distribution is paid out of the company's distributable profits and does not constitute an unlawful return of capital to the company's members. Is the transaction in best interests of the company? The primary fiduciary duty imposed upon directors is the duty to act bona fide in the interests of the company and not for any collateral purpose. Directors may want the additional comfort of a member's resolution approving the giving of any "financial assistance" by the company to minimise the risk of members challenging the transaction.


The Directors will need to ensure that entering into the transaction will not render the company insolvent and thereby leave the transaction open to challenge.

The fact that the directors have turned their minds to, and considered each of these issues should be evidenced in the board minutes approving and authorising the transaction. In certain circumstances, when considering the solvency of the company, its net asset position and what profits are available for distribution, the directors may wish to seek advice from the company's auditors or accountants.


Compliance with the whitewash procedure is both a costly and timely exercise. Failure to comply carries criminal penalties for the officers of the company involved and impacts upon the validity of the documents entered into by the company. It is for these reasons that the proposed repeal is welcomed.

Following the repeal of the statutory prohibition, the issues to be considered by directors are not too dissimilar from the issues which directors are currently statutorily required to take into account in order to comply with the whitewash procedure—but without the procedural burden and filing requirements.

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.