DQ recently acted in the first application to the Isle of Man Courts for the winding up of an Isle of Man foundation. The DQ legal team consisted of managing partner Tom Maher and associate Adam Killip.
In the case of Cavendish Trust Company v The Shared Success Foundation (July 2015), the Isle of Man's Chief Justice (His Honour Deemster Doyle) considered the principles applicable to the just and equitable winding up of companies in the absence of any established similar principles for foundations. His Honour also considered carefully the requirements of the Foundations Act 2011 (the "Act").
Deadlock between Foundation and Registered Agent
The application arose as a result of a deadlock between the council member and the registered agent of the foundation and the council member's refusal to appoint a new registered agent. Following the registered agent indicating its intention to resign, the council member of the foundation refused to exercise its power to appoint a replacement. Due to a lack of co-operation on the part of the council member, the registered agent was unable to comply with its regulatory obligations e.g. file annual returns, update its due diligence documentation, etc.
Registered Agent unable to "walk away"
Under the provisions of the Act, every foundation must have a registered agent and the retirement of a registered agent is not effective until a new registered agent is appointed. Consequently, the registered agent in this case was quite simply stuck; it was unable to resign and walk away, yet it could not comply with its obligations under the Act due to a complete lack of co-operation from the foundation itself.
In this particular case, the Court agreed that there was a serious breakdown in the relationship between the registered agent and the council member of the foundation. As a result of this "deadlock" and having considered the established legal principles regarding company winding-up and DQ's submissions on behalf of the registered agent, the Court found that it was just and equitable to wind up the foundation.
Winding Up Order Appropriate
The Court further held that there was no other reasonable alternative to a winding up order since the foundation consistently failed to deliver on its promise to appoint a new registered agent. In the circumstances, and noting that the claimant registered agent was found to have acted reasonably and professionally throughout, it was entirely appropriate to invoke the draconian remedy of a winding up order.
No power to strike off Foundation
It was also notable that under the Act, unlike in the case of companies, the Registrar of Foundations does not have the power to strike off a delinquent foundation. Accordingly, the process which will be followed by the Registrar is to consider prosecution for breach of the Act. The risk of such a prosecution was also a material factor in favour of winding up the foundation in this particular case.
This case shows that the Court will provide helpful assistance in appropriate cases when a fiduciary finds itself stuck between the proverbial "rock and a hard place". It is also a reminder that fiduciaries should ensure that their terms of business give them sufficiently flexible and wide powers to resign, to apply to wind up a structure when there is deadlock and to be indemnified for costs it incurs in such a process.
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