First published in Chambers and Partners Banking & Finance 2019 Second Edition, the definitive global law guide offering comparative analysis from top ranked lawyers. The guide provides comprehensive coverage of loan markets, tax considerations, guarantees and security, enforcement and project finance. The guide also highlights key centres for Islamic finance.
Cains has provided the Isle of Man chapter to the guide and below is an excerpt of the section relating to Isle of Man structuring and documentation considerations.
Below is a short excerpt of the Isle of Man Chapter prepared by Cains.
STRUCTURING AND DOCUMENTATION CONSIDERATIONS
Restrictions on Foreign Lenders Granting Loans
There are no Isle of Man law restrictions that prevent a foreign lender from making a loan to a company incorporated in the Isle of Man (whether such company is governed by the older Manx companies legislation, contained in the Isle of Man Companies Acts 1931-2004, or by the more modern regime principally set out in the Companies Act 2006). Such a lender will not need to be licensed, qualified or otherwise entitled to carry on business in, or otherwise registered with any governmental or other authority of, the Isle of Man. There are, however, Isle of Man law restrictions on foreign lenders granting loans to individuals and/or sole traders.
Restrictions on Granting Security to Foreign Lenders
There are no statutory restrictions under Manx law that would prevent a corporate borrower in the Isle of Man granting security or guarantees to foreign lenders, although with regard to the latter, similar considerations of corporate benefit will apply as they do under English law, particularly where a borrower is giving an “upstream” or “cross-stream” guarantee to a lender (whether domestic or foreign).
Restrictions and Controls on Foreign Currency Exchange
There are no foreign currency restrictions or controls in existence in this jurisdiction in relation to the exchange and remittance of sterling or any other currency from the Isle of Man, nor is there any legislation in place whereby such controls may be imposed.
Restrictions on the Borrower’s Use of Proceeds
Banks that are licensed by the Isle of Man Financial Services Authority (e.g. as full or restricted deposit takers) and other lenders regulated by the Isle of Man Office of Fair Trading are required by Manx law to ensure that the proceeds of loans made by them are not applied in a manner that would contravene Manx law in relation to matters such as financial sanctions. Financial sanctions are prohibitions and restrictions put in place by the United Nations, the EU, the UK and the Isle of Man, with the aim of maintaining or restoring international peace and security. Such sanctions can, among other things, limit the provision of certain financial services to specific individuals or entities, and also target those persons and organisations involved in international terrorism. The Isle of Man Government’s policy with regard to financial sanctions is to maintain the lists of those affected so that they correspond to those adopted by the UK (and by current association those adopted by the UN and the EU). The expectation is that the EU sanctions regime will cease to apply to the UK following any Brexit.
Much of the lending to Isle of Man corporates is by UK, Irish and other European banks, which in each case will need to comply with their own domestic regulatory obligations regarding financial sanctions, anti-bribery and corruption and AML/CFT regulations.
Agent and Trust Concepts
Both agent and trust concepts are recognised in the Isle of Man in substantially the same way as they are under English law. Bank financing to an Isle of Man corporate (particularly one holding UK commercial property) often involves a UK bank utilising LMA form English law governed loan documents, although some of the related security documents will usually be governed by Manx law (e.g. charges over shares in Manx obligors, charges over local bank accounts and assignments of subordinated intra-group debt governed by Manx law). Pursuant to such finance documents, there will typically be provisions whereby a facility agent and a security agent/trustee will act, and hold security, on behalf of, amongst others, the lender(s) and any hedge counterparty. To the extent such agency and trust arrangements are established under – and governed by – English law, there is no reason why they would not be recognised and enforced by the Manx courts. Consequently, there are no structures commonly used in this jurisdiction as an alternative to the trust structure.
Loan Transfer Mechanisms
Such mechanisms will be set out in the facility agreement, which will usually provide that an existing lender may assign any of its rights or transfer by novation any of its rights and obligations to a new lender (an LMA style loan agreement will include schedules containing a form of transfer certificate and assignment agreement). Assignments and novations under Manx law operate in the same way as under English law (with regard to the former, the relevant Manx statute governing assignments is based on section 25(6) of the Supreme Court of Judicature Act 1873 in England, which is the forerunner of section 136 of the Law of Property Act 1925 in England). For the sake of completeness, in addition to such an assignment or novation, the commercial risk of an existing loan could be transferred to a new lender by means of sub-participating the same or entering into certain types of derivative contract (including a total return swap).
Likewise, in respect of a facility agreement governed by Isle of Man law, the main transfer methods would be assignment and novation.
As the transferee of all or part of the existing loan to a Manx corporate borrower, the new lender will typically become a “secured party” for the purposes of the finance documents and, as a result, benefit from the security (including any Manx law security) granted to the security agent/trustee, which is being held on trust for such parties. Therefore, at least in relation to any Manx law governed security, there is no question of new security having to be granted, thereby resetting hardening periods and jeopardising the priority of security.
Under English law LMA syndicated loan agreements, it is possible for the option of debt buy-back by the borrower or sponsor to be included. As a matter of Manx law, an Isle of Man-based borrower and a lender (whether located inside or outside of this jurisdiction) are free to contractually agree such buy-back terms in their loan agreements
Public Acquisition Finance
The City Code on Takeovers and Mergers (the “City Code”) is issued and enforced by the Panel on Takeovers and Mergers (the “Panel”), and applies to all offers for companies that have their registered offices in either the UK, the Channel Islands or the Isle of Man if, among other things, any of their securities are admitted to trading on a regulated market (e.g. the Main Market of the LSE or the TISE) or a multilateral trading facility (e.g. AIM) in the UK, or on any stock exchange in the Channel Islands or the Isle of Man.
The City Code is based upon six General Principles, which are applied by the Panel in accordance with their spirit in order to achieve their underlying purpose, and also contains a series of rules.
Pursuant to General Principle 5, as reinforced by Rule 2.7(a), an offeror must only publicly announce a bid for a Manx company to which the City Code applies “after ensuring that he/she can fulfil in full any cash consideration, if such is offered, and after taking all reasonable measures to secure the implementation of any other type of consideration.” In light of these “certain funds” rules, the Panel does not normally allow financing conditions to be a feature of an offer for a Manx company.