Key 2006 Developments
6th December 2006
2006 has been another key year for the progressive development of the Isle of Man 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 at a pace. Recent high profile listings have included Nikanor plc (the DRC mining outfit and believed to have had the largest ever market capitalisation on admission to AIM) and more recently Lamprell plc (one of the world’s leading offshore oil and gas service companies based in the UAE – market capitalisation of £395 million). Indeed with some 50 Manx plcs now quoted –the Isle of Man has become the most commonly used offshore jurisdiction for AIM related work. Robert Cleaver, one of the partners at Linklaters who led the team advising on the Nikanor float said “Using an Isle of Man incorporated holding company was particularly helpful as Manx law offers considerable flexibility. The Island has an excellent financial services industry which makes it possible to get things done quickly and efficiently.”
New companies legislation
With the year drawing to a close, the Isle of Man government will on 1 November implement the biggest shake-up in Manx companies’ law for seventy-five years with the introduction of the Companies Act 2006 (the “Act”).
In the words of Allan Bell, the Treasury minister, he considers the Act “to be innovative, more flexible legislation that will allow the Isle of Man to compete on more equal terms with other jurisdictions, but at the same time continue to maintain the international standards that the Isle of Man has consistently applied and demonstrated with its commitment and responses to the various international bodies.”
The Act provides for the new Manx corporate vehicle (the “NMV”) to co-exist 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. The Act resulted from many months of public/private sector partnership with both our firm and another leading Isle of Man firm assisting with the drafting.
For those who are familiar with the international business company model, successfully promoted by jurisdictions such as the BVI, there are many similarities. 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.
Key legal features of the new Act include:-
- 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. However, 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 shall 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 of the charge, an application to register the charge 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.
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 IOM based directors and secretaries generally no longer apply.
- Secretary – this position has been removed but instead a company must have a registered agent who is responsible for administering their 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 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 greatly improved. 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 need to hold an AGM has been dispensed with. Companies are of course free to maintain this requirement if investors would expect such interaction.
- Reduced compulsory registry filings.
- Accounting requirements are less prescriptive – but the need to maintain accounts is enshrined once again in the legislation. Accounts can however be prepared and shares denominated in any currency. Audit exemptions will also be applicable to companies up to a certain size – the exact terms of these changes will be determined in due course.
- Relatively simple transfer of domicile procedure.
- Relatively simple merger and consolidation procedures.
Use as listing vehicles and international acceptance
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 IOM 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 simpler. From now on directors need only ensure that any offering document contains all material information relating to the offer or invitation:
● 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
● of which the directors or proposed directors were aware at the time of issue of the offering document, or of which they would have been aware 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 base line for companies. Some businesses will be happy to use the NMV with the standard model ‘Table A’ style memorandum and articles. Others will however 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.
The Future
The introduction of the NMV is very much part of the Island’s long term branding and business development strategy.
Over the past few years the Island has put in place a modern and competitive multi-product offering. The recent cap on income tax and move to zero corporate tax makes the Island an option for entrepreneurs, HNW individuals and global corporations alike looking for a tax neutral jurisdiction close to the heart of Europe. For the relatively few businesses on the Island which retain a corporate tax liability (essentially banks and property development companies) the government is considering a corporate tax-cap. Allan Bell, the Treasury Minister, believes this “will firmly place the Island in the minds of corporate group businesses as a strategic location for their business operations”. He continues that these initiatives including the NMV “will further underscore our attractiveness to international finance and demonstrate our determination to remain at the cutting edge of the global industry.”
This article was written by the head of Cain's London office, Daniel Mackelden and was originally published in 'The Lawyer' November 2006.
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