Isle of Man: That's The Spirit

Last Updated: 2 December 2015
Article by Andrew Webb

Insolvency law in the Isle of Man has failed to be reformed on different occasions in the last twenty years in spite of Government initiatives. Increasingly, judges of the High Court have weighed-in to criticise this state of affairs, where reference still has to be made to the Bankruptcy Code 1892 (the Code) to determine not only the laws of individual bankruptcy, but also the insolvency laws applicable to companies and all other commercial entities.

For the large part, notwithstanding the antiquated state of the law, the Code still delivers substantively on most issues arising for the practitioner. There are inconveniences, the (English) common law, which in the UK has been displaced by the Insolvency Act 1986 and its rules, continues to be the prime source for guidance in the Isle of Man. As Professor Fletcher said in the context of cross-border insolvency, "the law is in a state of arrested development". Necessarily, there are gaps or inconsistencies in Manx common law not addressed by statutory intervention which lead to bizarre results; for example, computation of interest claims in an insolvent winding-up is effected at the date of filing of a winding-up petition; this is consistent with the last authority in England before the Insolvency Rules 1986, namely Re Amalgamated Investment & Property Co Ltd 1984 BCLC, but when set against all other computations of proof at the date of the winding-up order, this is clearly an anomaly. When the UK by statute intervenes to change the law, what then is the status of English common law for those jurisdictions where English common law is the default position in the absence of local statute or local common law?

In Spirit of Montpelier & others v Lombard Manx 2015 SGD, the Staff of Government division (the Island's appeal court) (SGD) has taken upon itself to intervene to change the common law position regarding the revocation of winding-up orders. Hitherto, following the principles in Frankland v R [1987-89] MLR 65, in the absence of local authority or statute to the contrary, English legal precedent is treated as highly persuasive, particularly decisions of the Supreme Court and Court of Appeal. The SGD noted that there already existed a tentative thread of cases where the Island's Courts had intervened to change the law "in the interests of justice" notwithstanding the absence of statutory support.

The SGD found in the case in point that a revocation of a winding-up order, contrary to the common law prevailing in England & Wales prior to Rule 7.47(1) of the Insolvency Rules 1986, would serve the interests of justice. Significantly, there was nothing in the Isle of Man statute to prohibit such a revocation, only the English common law, in its arrested state of development which denied the remedy. The SGD determined that it was appropriate to develop the common law where

"Tynwald has declined to replicate such a provision [Rule 7.47(1)]. In such circumstances, we are satisfied that this Court is entitled to determine whether in such circumstances its own inherent jurisdiction at Manx common law can provide a remedy and we are satisfied that in this case it does so".

Surprisingly, this comes in the wake of the highly persuasive Privy Council case Singularis Holdings Limited v PriceWaterhouseCoopers [2015] UKPC and Lord Collins' castigation of "impermissible legislation from the bench" as "profoundly unconstitutional."

Critically, the SGD found that "Frankland does not require the Court to regard decisions of the English Courts prior to the making of Rule 7.47(1) such as Re Intermain as binding on the Manx Courts. In truth, even per Frankland, such decisions were only of "highly persuasive authority" and "generally" should be followed in the absence of a Manx statute."

To distil the SGD's position, the Island's Courts are at liberty to make law where there are indications that English common law has been superseded by statute, in cases where the interests of justice require. In Spirit of Montpelier, the SGD held that the jurisdiction to revoke a winding-up order should only be exercised where there has been a material change after the order has been made or where the facts on which the original order had been made were wrong, whether that error was innocent or not, or if there had been a manifest error on the part of the judge making the order.

So were the interests of justice served? The facts presented to the lower court which resulted in the winding-up order stated a value attributable to the principal asset, a luxury yacht, which it subsequently transpired, on a further valuation, was worth more than the statutory demand. The result of which was that the statutory demand could have been met out of the proceeds of sale of the yacht. Prima facie, the winding-up order should not have been made because Lombard would not have been able to establish that the company was unable to pay its debts. On those facts alone, there was an argument that the order should be revoked and that it would be in the "interests of justice" to do so.

However, the SGD went on to note at the end of the judgment that there were additional creditors and given the yacht was the only material asset, a successful winding-up petition might not be resisted, even had the finance company been paid off.

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.

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