On the 6th March 2014, Mann J placed Gulldale Limited into administration in England. In so doing, Gulldale became the first Isle of Man incorporated company with the centre of main interest in the Isle of Man to be placed into administration in England.
Mann J was acting upon a Letter of Request issued by the Isle of Man High Court of Justice, received under section 426 of the Insolvency Act 1986. Capita Asset Services (London) Limited applied to the Isle of Man High Court for a Letter of Request to be issued to the High Court of England and Wales seeking that the English Court make an administration order over Gulldale under the Insolvency Act 1986.
Capita, the special servicer appointed by the principal secured creditor of Gulldale, argued that the company was unable to pay its debts and therefore required an insolvency procedure to be put in place to protect and manage the assets of the company for the benefit of its creditors, and that administration was, in all the circumstances, the most appropriate process given the location of the assets and the company's creditors. There is no administration procedure in the Isle of Man and therefore the only possible way Gulldale could benefit from the administration process would be for the Court in the Isle of Man to issue a letter of request to the English Court pursuant to its inherent jurisdiction.
Gulldale formed part of a commercial property structure which owned a number of large properties in the City of London. The beneficial interest in the properties was held by Gulldale, the legal interest was vested into English companies. The structure had been financed by lending from English institutions which were secured over the properties in England. At the time of Capita's application, the loan was in default, receivers had been appointed over the properties and the two English companies in the structure had been placed into administration. It was considered by the administrators appointed over the English companies, that if Gulldale was placed into liquidation in the Isle of Man, it would be detrimental to the realisation strategy. As an Isle of Man company whose centre of main interests was in the Isle of Man, Gulldale did not qualify as a "company" under Schedule B1 of the Insolvency Act 1986. In the circumstances, the English court had no power (in the absence of a Letter of Request from the Isle of Man Court) to make an administration order over Gulldale.
Previously the Isle of Man Court had sought assistance from the English court to apply an insolvency procedure not available under Isle of Man insolvency law in the case of Television Trade Rentals Ltd., In re, English Ch. D., February 19th, 2002 by issuing a Letter of Request to the English High Court requesting that two Manx companies be made subject to a company voluntary arrangement procedure available in England under Part 1 of the Insolvency Act 1986. In that case, the Isle of Man Court determined that it had jurisdiction under the common law to issue such a Letter of Request in the same way as it does to act upon an incoming Letter of Request as it did in the case of Impex Services Worldwide Limited 2003-05 MLR 115.
The case of Trade Rental Television demonstrated that the Isle of Man Court was prepared to request the English court to apply insolvency procedures to an Isle of Man company, which were not available within the Isle of Man jurisdiction. Such request issued by the Isle of Man court cannot be said to be simply a case of forum shopping. The Isle of Man Court will not be prepared to accede to a request that it issues a Letter of Request for assistance from a court where there is not a significant connection between the Isle of Man company and the foreign jurisdiction. In the Gulldale case, whilst the company's centre of main interest was in the Isle of Man, it had significant connections in England; its assets and creditors were situated in England as were its subsidiary companies which had already been placed into administration.
Once satisfied that Gulldale had sufficient interest in England and that issuing the Letter of Request was in the best interests of the company, its creditors and the public, Deemster Doyle issued the Letter of Request stating that he could see the real practical advantages in proceeding via the English administration route. He noted that Manx law did not make provision for the flexibility offered by the English administration process and expressed the hope that the issuing of a Letter of Request would facilitate the most efficient and effective administration of Gulldale's assets in the best interests of all concerned. Indeed, it is clear that in applying his discretion, Deemster Doyle was particularly conscious of the principles of comity and the interests of the island in terms of its external reputation.
Gulldale is a further example of the Isle of Man Court's willingness, in circumstances where it would appear to be to the greatest benefit of all parties concerned, to reach outside its shores and take advantage of the more modern rescue insolvency remedies which are now well established in England and indeed other foreign jurisdictions. One could argue that the main distinction between the insolvency regimes in the Isle of Man and England in the modern era, has been the lack of an administration process in the Isle of Man.
Isle of Man Insolvency Law is governed by the Companies Act 1931 and the Winding Up Rules 1934. The insolvency statutory provisions set out in the said legislation promote the traditional insolvency law principles of winding up a "failed" company, rather than the more modern approach of rescuing that "failed" company introduced by the Insolvency Act 1986. With foreign jurisdictions having developed their insolvency regimes to now arguably be more focused on rescue than liquidation it was perhaps inevitable that the Isle of Man Court would, in default of statutory provision, exercise its inherent discretion to reflect such a movement, albeit only in circumstances where the rights of secured creditors are unaffected.
There are various examples in recent years of the Isle of Man Court's evolving approach from viewing liquidation as being the only option for an insolvent Manx company to accepting appointments of provisional liquidators and indeed recognising the appointment of foreign administrators and examiners with the purpose of providing the Isle of Man company with an opportunity to rescue itself rather than assigning it to certain liquidation (see the case of 2e2).
As an offshore business centre, most Isle of Man companies form part of complex global corporate structures which hold assets in various different jurisdictions. It is therefore of paramount importance that should an insolvency situation arise within that structure, that the Isle of Man court does not allow the constraints of its statutory regime to prejudice the overall insolvency strategy, indeed, Gulldale should provide comfort that the court will do all it can to facilitate the global insolvency strategy, even if this means requesting that insolvency procedures not recognised within the jurisdiction be applied to the Isle of Man company.
There are currently no plans to adopt into statute administration procedures in the Isle of Man.
Article first published in International Corporate Rescue, April 2014
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