The introduction of the Companies Act 2006 will reinforce the Isle of Man as one of the world’s top jurisdictions for corporates. By Daniel Mackelden
2006 has been another key year for the progressive development of the Isle of Man’s finance industry. In April the territory moved to a zero rate of taxation for virtually all companies and introduced a tax cap on personal income.
In the meantime, the popularity of Isle of Man companies for use on the AIM and Official List markets has continued apace. Recent high-profile listings have included mining outfit Nikanor and more recently Lamprell. Indeed, some 50 Manx plcs are now quoted and the Isle of Man has become the most commonly used offshore jurisdiction for AIM-related work.
New companies legislation
The Isle of Man government will, on 1 November, implement the biggest shake-up in Manx company law for 75 years with the introduction of the Companies Act 2006.
The act provides for the new Manx corporate vehicle (NMV) to coexist with present and future companies incorporated under the existing legislation. It has been reviewed by off-island experts from a practical company law perspective and, in the context of the island’s current and likely future obligations, in terms of international standards.
There are many similarities with the international business company model promoted successfully by jurisdictions such as the British Virgin Islands. However, although the NMV is more streamlined and relevant to the needs of modern business than the existing corporate vehicle, some of the safeguards as to administration and corporate governance developed over time in the Isle of Man will continue to apply to the NMV.
There are key legal features of the new act:
No concept of authorised share capital. Shares may be issued with or without par value.
Maintenance of capital – subject to compliance with its memorandum and articles of association, the act allows an NMV to declare and pay a dividend and to purchase, redeem or otherwise acquire its own shares subject only to meeting a statutory solvency test. The ability to provide for the acquisition of shares in this way may be of benefit to open-ended investment companies in particular.
Removal of financial assistance prohibitions.
NMVs have unlimited corporate capacity. The act states that no corporate act is beyond an NMV’s capacity by reason only of the fact that the relevant NMV has purported to restrict its capacity in any way in its memorandum or articles or otherwise. A person who deals in good faith with an NMV is entitled to assume that the directors of the NMV are acting without limitation. Restricted object clauses are permissible, but subject to the overlying theme above.
Charges may be registered at the Companies Registry within one month of their creation. It is not mandatory to register charges with the Companies Registry, but failure to do so may affect the priority of the charges created by the NMV, and in addition failure to register will render the charge void against the liquidator and any creditor of the NMV. If a charge is not registered at Companies Registry within one month of the date of the creation, an application to register may be made to Companies Registry at any time prior to the commencement of the winding up of the NMV. Expensive court orders for an out-of-time registration have thus been removed.
There is no differentiation between public and private companies in the act.
Administration and corporate governance
Some of the key administration and corporate governance features of the new act include:
Only one director is now required. Directors can be an individual or corporate. As a result of a move to zero tax and the new act, previous requirements for a company to maintain Isle of Man-based directors and secretaries generally no longer apply.
The secretary position has been removed, but instead a company must have a registered agent who is responsible for administering its affairs on the island. Such functionaries must be licensed in the Isle of Man. Apart from making filings on behalf of the company, the registered agent must also ensure that the company keeps certain books and records at the registered office.
Annual returns must still be made, but the method of preparation and submission has been improved greatly. Public searches in the Isle of Man, unlike some other offshore jurisdictions, will therefore remain a useful source of information in respect of a company and its affairs.
In terms of company types and names, relaxed provisions apply, including use of foreign names. Protected cell companies are now permitted across the board (they could only be used in limited situations only under the old legislation).
The requirement to hold an annual general meeting has been dispensed with.
There are reduced compulsory registry filings.
Accounting requirements are less prescriptive, but the need to maintain accounts is enshrined once again in the legislation. Accounts can be prepared and shares denominated in any currency. Audit exemptions will also be applicable to companies up to a certain size, with the exact terms of these changes to be determined in due course.
There is a relatively simple transfer of domicile procedure.
There are relatively simple merger and consolidation procedures.
Ease of regulatory approval
One of the useful features of the new act is simplified offering document requirements. Under the old legislation, most UK listings of Manx vehicles were able to take advantage of private placement exemptions, which meant that no Isle of Man regulatory approvals were required as part of the listings process. The ability to list an Isle of Man company without the need for prior regulatory approval (in contrast to some other competing offshore jurisdictions) has been a major selling point for the island.
The lack of direct regulatory approval continues under the new act. The prospectus /offering document requirements in the act are less prescriptive and more simple. From now on directors need only ensure that any offering document contains all material information relating to the offer or invitation, including:
that the intended recipients would reasonably expect to be included in order to enable them to make an informed decision as to whether or not to accept the offer or make the application referred to in the offering document; and
what the directors or proposed directors were aware of at the time of issue of the offering document, or what they would have been aware of had they made such enquiries as would have been reasonable in all the circumstances, and such information must be set out fairly and accurately.
It should be noted that the act is a baseline for companies. Some businesses will be happy to use the NMV with the standard model ‘Table A’-style memorandum and articles. Others, however, will require bespoke documentation, for example when listing vehicles or in funds/private equity/joint venture scenarios. It will, of course, remain feasible to tailor a company’s articles to give the company a more ‘English’ feel and thus meet the expectations of institutional investors and businesses.
Initial discussions with London-based law firms suggest that investment banks, institutional investors and their advisers will be comfortable dealing with the NMV.
Daniel Mackelden is head of Cains’ London office