Isle of Man: Use Of Isle of Man Vehicles For AIM Listings

AIM is becoming an increasingly popular option for companies looking to raise capital. A growing number of new floats have been Isle of Man companies and this suggests that international businesses are realising the advantages of using an Isle of Man vehicle to access the AIM Market.

There are a number of specific factors which have contributed to the success of the Isle of Man as a jurisdiction for AIM listings:

• The Island has a high quality and stable political, legal, fiscal and regulatory environment and has received an AAA credit rating from both Standard and Poor’s and Moody’s credit rating agencies.

• Closed-ended investment companies are not classed as funds under Isle of Man law and are not therefore subject to the Isle of Man funds regulatory regime, which results in a time and costs saving. No regulatory approval is required to form a public company.

• The quality of the Island’s professional infrastructure. There are many lawyers, accountants, administrators and banks on the Island who have the expertise and experience to deal with AIM listings.

• 2006 has also seen the implementation of the Isle of Man tax strategy which has been the subject of much planning, fine tuning and consultation over the past 5 years. As a result, the general rate of corporate income tax in the Isle of Man is now 0%, so Isle of Man companies are tax neutral yet do not have to comply with any tax exempt regime.

• The provision of company administration services is a regulated activity in the Isle of Man. All persons providing such services are required to be licensed by the Isle of Man Financial Supervision Commission (the "FSC"). As a result the Island has developed a professional and mature corporate service provider sector.

• The Isle of Man has a common law legal system and the Island’s laws in most areas are very similar to those of England. In particular, credit and security concepts are the same and London based banks and their lawyers are therefore comfortable dealing with the Isle of Man.

• The Isle of Man is only an hour’s flight time from London and within the same time zone, making board meetings easy to arrange and attend.

The benefits of using an Isle of Man vehicle for AIM listings has been further enhanced by the introduction of the new Isle of Man Companies Act 2006 which came into force on the 1st November. Traditionally, Isle of Man company legislation has been based on English company law statutes and the existing Isle of Man Companies Act 1931 closely follows the English Companies Act 1929, subject to certain amendments unique to the Isle of Man.

The new Isle of Man Companies Act 2006 (the "Act") has introduced a new simplified corporate vehicle into Isle of Man law. The new corporate vehicle follows the international business company model which is available in a number of offshore jurisdictions.

The Act is largely a stand alone piece of legislation and companies incorporated under the Act co-exist with present and future companies incorporated under the existing Companies Acts 1931-2004 ("1931 Act Companies").

Companies incorporated under the new Act have far more flexibility (in terms of capital restructuring and returning capital to its members) and are easier to administer than 1931 Act Companies. Some key features of the new Act are set out below:

• The Act does not distinguish between public and private companies and (subject to any restrictions in a company’s memorandum or articles of association) any type of company under the Act can offer its securities to the public.

  If a company does issue an offering document the criteria with which the offering document must comply are far less prescriptive than the traditional prospectus requirements which apply to 1931 Act Companies. The Act simply requires the directors to ensure that any offering document issued in relation to a company contains all material information that the intended recipients would reasonably expect to enable them make an informed investment decision and of which the directors were aware or would have been aware had they made reasonable enquiries. An offering document may be filed at the Isle of Man companies registry if the company chooses to do so.

• The Act sweeps away the traditional concept of capital maintenance. A company incorporated under the new Act does not need to classify its assets as income or capital. Instead the Act allows a company to distribute its assets to its members (whether by way of dividend, buy back or redemption of shares or otherwise), provided that the directors of the company are satisfied that the company will, immediately after the distribution, satisfy the solvency test. A company will satisfy the solvency test if it is able to pay its debts as they become due in the normal course of its business and the value of its assets exceeds the value of its liabilities.

• Similarly a company can reduce its share capital in any way, without the need for the sanction of the Court, provided that the directors are satisfied, on reasonable grounds, that the company will immediately after such reduction, satisfy the solvency test.

• There are reduced compulsory filings under the new Act. In particular, there is no requirement for a company to file details of its members with the Registrar of Companies or to notify the Registrar of any changes in its directors (although details of a company’s directors will need to be included on its annual return).

• The Act contains very few prescriptive rules relating to members meetings. Companies are not required to hold annual general meetings and the Act allows members meetings to be held at such time and in such places, within or outside the Isle of Man, as the convener of the meeting considers appropriate. Listed companies will of course provide for annual members’ meetings in their articles of association.

• The Act also introduces an amount of flexibility in relation to the constitution and conduct of board meetings, however, most of these provisions will not be of relevance to listed companies.

• The Act provides an extensive range of member protection provisions. Under the new legislation, members have the right to apply to Court for a restraining compliance order, the right to bring derivative actions, remedies for oppressive or unfairly prejudicial conduct, the right to bring personal actions and the right to apply to Court for an order that an investigation be made of the company and any of its associated companies.

Every company incorporated under the new Act has to have a registered agent in the Isle of Man. Only corporate service providers who hold the appropriate licence issued by the FSC can act as registered agents. This requirement ensures that there is a licensed professional on the Isle of Man overseeing the administration of the company.

The introduction of the zero rate of corporate income tax in the Isle of Man and the implementation of new company legislation, when added to the existing benefits which the Isle of Man has to offer in terms of its professional expertise, means that the use of an Isle of Man vehicle to access the AIM market will continue to be an extremely attractive proposition for businesses wishing to benefit from the advantages of floating on AIM

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.