Alan Gough of Gough Law reviews a recent decision which has given Manx liquidators greater scope than simply winding up a company’s affairs.

In a landmark decision, the Manx courts have held that, in appropriate circumstances, a liquidator should consider whether restructuring or refinancing proposals made in respect of a company in liquidation are worthwhile pursuing.

This is a significant departure from the historic position in the Isle of Man, which did not provide for anything akin to an administration, and limited a liquidator’s principal role to collecting in the assets and making appropriate distributions.

The Eco Resources Fund PCC plc (’the fund’) went into liquidation on March 16, 2017, following an application by the Financial Services Authority that it be wound up on public interest grounds. Attempts had been made to refinance the fund on a number of occasions prior to it being wound up, but such offers did not materialise in time to save the fund.

Shortly after the winding up of the fund on March 16, the refinancing proposals which had been in the process of being negotiated took on a more concrete form.

A large group of creditors/members, represented by Chiva Arthurs of Gough Law, argued that those proposals should be properly considered by the liquidator when appointed.

If viable, they submitted that the funding (which was in the advanced stages of being negotiated) had the potential to pay off all creditors in full and provide a substantial long-term return to investors.

The Financial Services Authority disagreed - it said that liquidation was a terminal process.

Further, it categorically objected to public purse funds being used to refinance the fund or even public funds being used to consider the feasibility of such proposals by a liquidator.

A dispute arose between these two factions as to who should be appointed liquidator.

The Financial Services Authority pushed for the appointment of the person who had already been appointed provisional liquidator on March 16 - a person who had previously been involved with the fund as an advisor and a controller (appointed by the Financial Services Authority).

The creditors/members group put forward another candidate for liquidator, one who had no previous involvement with the fund, and who was prepared to consider the feasibility of the refinancing proposals, and come to a view on such proposal within three months of being appointed.

It was further proposed that his getting up to speed with the work which had already been undertaken by the provisional liquidator would be funded privately and in these terms therefore, and there would be no additional cost the tax payer.

appointed

The matter came before the court on July 14, and the court determined that the liquidator chosen by the creditors/members should be appointed.

The court deemed that such appointment would not cause unnecessary cost or delay.

Notably, the court held that a liquidator should, as part of a liquidation, consider the viability of offers of financial assistance. In the present case, it was appropriate for the liquidator to consider the restructuring/refinancing proposals which were open to the fund and determine whether they should be pursued.

His Honour Deemster Doyle took the opportunity to reiterate the need for liquidators to be independent.

A liquidator has to act and be seen to act independently of all interested parties (including the Financial Services Authority and the Treasury).

It was the court’s view that the Financial Services Authority had no right to seek to dictate to a liquidator how he should exercise his powers - ’he who pays the piper does not call the tune’.

The fact that the liquidation in question was a public interest liquidation did not alter that principle.

In the present case, the court took the view that the Financial Services Authority’s choice of liquidator had ’inappropriate Eco baggage’ in respect of the fund, arising from his historic involvement with the fund and it was therefore best if he were not to be appointed liquidator.

It remains to be seen how this significant decision by the courts will alter the landscape insofar as liquidations are concerned.

At first blush, it certainly appears to open the door for restructures if solid proposals are in place, which would allow for the carve out and continuation of a company’s profitable arms.

administration

This is as close as the Isle of Man has ever come to the administration regime available in England and Wales, and to Chapter 9 Bankruptcy proceedings in the United States.

Businesses will no doubt see this as a positive development in efforts to modernise the Isle of Man’s archaic insolvency framework.

The full judgment can be found at https://www.judgments.im/content/J1920.htm