Describing the decision as “landmark”, Alan Gough of Gough Law, writing in local newspaper IOM Today, said the Isle of Man previously did not provide for anything akin to an administration process and limited a liquidator’s principal role to collecting in the assets and making appropriate distribution.
Significance still to be determined
“It remains to be seen how this significant decision by the courts will alter the landscape insofar as liquidations are concerned,” Gough wrote.
“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.
“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.”
Eco Resources Fund
The court decision relates to the beleaguered Eco Resources Fund that went into liquidation on 16 March 2017 following an application by the Isle of Man Financial Services Authority (IoMFSA) 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 in March, the refinancing proposals that had been in the process of being negotiated took on a more concrete form.
A large group of creditors/members, represented by 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, Gough wrote.
Terminal insolvency
The IoMFSA disagreed and 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 IoMFSA pushed for the appointment of Gordon Wilson who had been appointed provisional liquidator in March. Wilson had previously been appointed as an adviser and a controller of the fund by the IoMFSA.
The creditors/members group put forward Michael Simpson of PwC as liquidator.
They argued that Simpson had no previous involvement with the fund and was prepared to consider the feasibility of the refinancing proposals, and come to a view on such proposal within three months of being appointed.
New liquidator appointed
The matter came before the court on 14 July, and the court determined that Simpson should be appointed.
It 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.
Presiding Deemster Doyle took the opportunity to reiterate the need for liquidators to be independent.
It was the court’s view that the regulator had no right to seek to dictate to a liquidator how he should exercise his powers – telling the court that “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.
