Offshore: Isle of Man - Go Man, go
5 November 2012 | By Joanne Harris
25 February 2013
25 February 2013
29 April 2013
30 May 2013
23 January 2013
Business is booming in the Isle of Man, a small jurisdiction that thinks big
Appleby’s 2009 merger with Isle of Man (IoM) firm Dickinson Cruickshank was seen by some as just another stage in the offshore giant’s expansion strategy - a strategy that some critics have described as “flag-planting” around the globe.
The IoM does not have the same profile as other offshore centres. Its population remains small and it lacks the brand recognition of the British Virgin Islands (BVI), the Cayman Islands or even its more local rivals Guernsey and Jersey.
But Appleby’s arrival was a sign of confidence in the market, and in the past three years the jurisdiction has continued to do well. According to a recent report, in 2010-11 the island’s economy grew by 3.4 per cent - a result that would make many other economies rather envious.
This economic success is reflected in the island’s commercial law firms’ reporting of similar growth. Several Manx firms, including the local office of Appleby, report growth in line with or better than the local economy for the past six to 12 months. But the key to this lies as much outside the island as within its shores.
Even before Appleby’s arrival, internationalisation was creeping into local lawyers’ thoughts. In 2008 Cains opened a Singapore office, becoming only the second offshore firm in the jurisdiction.
Following Cains’ Eastern foray and the Dickinson Cruickshank merger, which brought a truly global firm to the island for the first time, Manx outfits are now seriously looking at how they can diversify their offering away from purely local advice.
The jurisdiction of choice is the BVI.
“The BVI company is the ubiquitous offshore company,” says Dougherty Quinn director Tom Maher. “It’s still seen as flavour of the month for many private wealth funds around the world, particularly Asia-related businesses.”
Cains managing director Andrew Corlett agrees that the BVI is “almost generic” in the offshore world. The number of companies registered in the BVI - around 750,000 - far outweighs the 25,000 or so in the IoM, despite reforms to the Companies Act in 2006, which led to the creation of what is known as the New Manx Vehicle (NMV).
“We did that to try and redress the perceived imbalance in advantages between the BVI and the IoM,” adds Maher. “We’ve seen great success with that corporate vehicle, but there’s still a perception in some wealth planning jurisdictions that BVI is the way to go.”
Manx firms have addressed the BVI problem in one of two ways. Either they have hired BVI-qualified lawyers to work in their local offices or they have formed relationships with BVI firms.
Simcocks went for the latter route earlier this year. Chief executive Phil Games says the firm formed an alliance with BVI firm Samuels Richardson & Co so it could offer BVI services. Two Simcocks lawyers have also been admitted to the BVI bar.
“What we’re trying to do is see whether there’s a possibility to tap into the BVI work and do that work from the IoM,” Games explains. “We’re very conscious that we are reliant on the UK and Europe being successful and, as the UK and Europe are struggling, it was inevitable that there would be a drop-off in business coming to the island. We thought the best thing was to find another cake and see if we can have a piece of that.”
Games estimates that around 70 per cent of Simcocks’ business used to come via London, but believes that has now dropped to around 25 per cent.
He says that the alliance, still less than a year old, has “paid for itself already”, with resulting work including a joint venture on a mobile phone application.
Dougherty Quinn senior associate Stephen Dougherty joined the firm in 2010 to build the BVI capability. Dougherty - whose brother Mark is a director at Dougherty Quinn - had worked in the BVI for several years.
Maher says the capability is important for the firm, which is trying to develop the practice so it can advise clients from a range of jurisdictions on BVI matters.
Corlett says Cains’ Singapore venture has been successful, although the work being done there now is not that which was originally planned for the office.
“We went out there because of IPOs at the time and that obviously has been slower in the past few years,” Corlett says. “The work we’ve been doing out there has been more on the restitution side.”
Corlett thinks Appleby’s establishment has been a good thing for the island’s legal market.
“It’s probably concentrated the minds of everyone in the external-facing legal market that we’ve got to get out and about and raise our profiles more,” he says.
Appleby IoM managing partner Sean Dowling, previously a partner at legacy firm Dickinson Cruickshank, says the merger has been a bigger success than expected.
“If you were to ask internally you’d find the merger has gone better than we thought it would,” says Dowling. “In terms of clients, a lot of our business comes through London and lots of the instructions are from large law firms with multi-jurisdictional requirements, but are also looking for a firm that understands the international marketplace. That’s been more successful than I thought it would be.”
Dowling adds that most of Appleby’s Manx work comes through London, although he does find the complementary offering of the firm’s Asian and Caribbean offices useful. “We generally would be doing similar stuff to the other law firms here,” he says.
Like the other Manx firms, Appleby sees synergies between the BVI and the IoM, and also offers BVI services from its IoM office.
“What’s beneficial about doing BVI work here is the time-zone,” says Dowling. But he does not think the IoM should try to take significant market share from the BVI. “It would be foolish for the island to compete with the BVI offering,” he adds.
Although the jurisdiction may not be seeking to take market share from other offshore centres, it is competing with them for bus iness. The economic growth figure shows the island is being pretty successful at this.
The key, say lawyers on the island, is diversification. The IoM has developed expertise in a number of emerging sectors in the past few years including space, e-gaming and aircraft. To add to the island’s existing sizeable ship registry, it now has a growing aircraft registry, with 500 craft registered in the island.
The space industry has led not only to space companies using the IoM as a domicile, but also the development of a manufacturing business for high-tech components.
“The island’s government made a decision fairly early on that it was important to have a diversified economy,” says Corlett.
He adds that this is particularly important for the island’s close relationship with the UK.
“For a place like the IoM it’s important that we work in harmony with the UK’s broad strategic ambition,” Corlett says.
Paul Kerruish, managing director of Kerruish Law & Trust, says niche areas have proved to be a “fantastic magnet of superb quality clients to the island”. Kerruish praises the work of the government in supporting these industries through hiring its own commercial staff to service them.
In turn, he says, this is encouraging more businesses and individuals to redomicile their companies and themselves to the IoM.
It is partly in response to this trend that Kerruish left Gough Advocates this year to set up Kerruish Law & Trust, effectively splitting Gough’s commercial and fiduciary teams from its litigators.
Kerruish believes his firm can grow substantially through exploiting the niche practice areas that are doing well. He says that in recent months there has been an increase in the number of enquiries with regard to redomiciliations. “In the past six to eight months there’s definitely been a resurgence on that side,” he says.
According to Kerruish, moving to the IoM is a fairly simple process.
“The key is ditching your tax residence in, for example, the UK,” he explains. “There are no barriers whatsoever to relocating to the island. If you’re coming in with wealth and the ability to generate business the government bends over backwards to facilitate that.”
The redomiciliations serve two purposes - not only do they stimulate the island’s economy, but, according to Kerruish, they can also help slow the ‘brain drain’ of younger people from the island.
“The reality is that the IoM hasn’t reached a critical mass of population to continue its growth in all sectors,” Kerruish says.
The government’s efforts to attract business to the island mean it is now looking at opportunities in Asia, as are many other offshore jurisdictions.
“The island has been focusing on China,” confirms Games. “There’s talk of various treaties to be created between the two jurisdictions.
“It really comes down to long-term relationships and people being comfortable. The Chinese tend to follow others. If you’re in China and you’re looking for a company you ask for BVI,” he says, adding that the IoM faces an uphill struggle to capture a slice of the Chinese market.
However, he, like other lawyers, notes that the real work comes from where businesses are managed rather than where they are domiciled, and in this regard the island is doing better.
It is clear that the type of work being done by Manx lawyers has changed in the past few years. The AIM listings that used to dominate are far fewer, but the work in areas such as aircraft, space and e-gaming is keeping firms busy enough.
Games thinks Appleby may not be the last major offshore firm to set up shop in the IoM. Although he says Simcocks, for one, would prefer to maintain its independence, he sees the arrival of larger outfits as a vote of confidence in the jurisdiction, and one that bodes well for the future.
IoM: key facts
GDP (2010/11): £3.5bn
Annual inflation: 1.8%
Population (2011): 84,497
Life expectancy at birth:78
Unemployment rate (September 2012): 2.3%
Area: 221sq miles (572 sq km)
Source: World Bank, Isle of Man Government