"To improve is to change; to be perfect is to change often." - Winston Churchill
An update on the Companies (Amendment) Bill 2020
Introduction
The Companies (Amendment) Bill 2020 (Bill) has passed through Tynwald and has been sent for Royal Assent. If granted, the resulting Act would become operational on such day(s) as the Treasury appoints. When operational the Act will make two changes.
Conversion
First, the Act will allow companies incorporated under the Companies Act 2006 (CA06) to re-register as incorporated under the Companies Acts 1931 (CA31). This change may become operational by end July 2021.
The process will be essentially the same as re-registration of a CA31 company under CA06, except that additional requirements will apply in relation to a CA06 company that will be re-registered as a CA31 PLC.
The main reason why a CA06 company might re-register as a CA31 company is likely to be because a CA31 company does not require a registered agent (with associated expense). So for example domestic companies with internal administration systems (e.g. companies in the gaming sector) may wish to re-register for this reason.
The change will mean that a CA31 company could re-register under CA06 to carry out a particular transaction that is unavailable under CA31, and then return to being a CA31 company.
For example, a solvent CA31 company is generally prevented from distributing share capital without an application to court. This is to protect creditors. Under CA06 creditors are protected by the "solvency test" (that is, the directors being satisfied on reasonable grounds that after a distribution the company will remain solvent, able to pay its debts as they fall due and assets exceeding liabilities).
A CA31 company could, instead of applying to court, re-register under CA06, distribute share capital (assuming it satisfies the solvency test), and then re-register under CA31 again.
As other examples:
- A foreign company could redomicile into the Isle of Man under CA06 and then re-register under CA31. The redomiciliation procedure under CA06 is simpler than under CA31, so overall the double step may be more cost effective.
- A charge created by a CA31 or CA06 company that is not registered at Companies Registry is void against the liquidator and any creditor of the company. Under CA31, registration must be effected within one month, and an application to court is needed to extend the time for registration. Under CA06 a charge can be registered after the one month period without an application to court. A CA31 company that has not filed a charge within one month could re-register under CA06, file the charge without a court application, and re-register under CA31 again.
A CA31 company becoming a CA06 company would need to have a registered agent while it is a CA06 company, so there would be some expense involved, but it may be less expensive than the alternative depending on the circumstances.
CA06 has advantages over CA31, and there may be no reason for a CA31 company that becomes a CA06 company to return to being a CA31 company, however depending on the circumstances a return may be appropriate (e.g. to avoid an ongoing requirement to have a registered agent).
Filing changes in directors under CA06
The second main change that will be made by the Bill, when an Act and in force, will be to require CA06 companies to register changes in directors within one month. This was a MONEYVAL recommendation and will align CA06 to CA31 in this respect. When this change will become operational will depend on measures being put in place with the Companies Registry, to assist with the filing process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.