The Isle of Man Court has reaffirmed the application of the Rules of Court in winding-up proceedings. In Re Broadsheet LLC (in liquidation) (10 June 2024), Deemster Corlett was considering a joinder application from the purported legal and beneficial owner of Broadsheet LLC, filed at the eleventh hour in a 14-year insolvent liquidation which was almost complete.
In determining the correct procedure for joinder in winding-up proceedings, the Court had to consider to what extent the Rules of Court applied in such proceedings. The reason why there is some ambiguity in relation to this point is the relationship between Rule 1.3(2)(a) of the Rules of Court and Rule 196 of The Companies (Winding-Up) Rules 1934 (the Winding-Up Rules).
Rule 1.3(2)(a) of the Rules of Court provides:
“These Rules do not apply to proceedings to which any of the following rules apply, except to the extent that those rules otherwise provide – (a) The Companies (Winding-Up Rules) 1934”.
Rule 196 of the Winding-Up Rules in essence provides that where those Rules do not make specific provision, the rules and practice of the High Court shall apply.
The issue was previously addressed in Lombard Manx v Spirit of Montpelier [2015] MLR 250 where the Appeal Division confirmed that the effect of Rule 1.3(2) was that the Rules of Court do apply when the Winding-Up Rules do not provide for the situation to be addressed. The Court went on to hold that Rule 7.2(7) of the Rules of Court could not give the Court power to vary or revoke a winding-up order since Rule 7.2(7) could only apply to an order made under the Rules of Court. A winding-up order was not made in this way, rather it was made under the Companies Act 1931. (Interestingly, in Lombard Manx, the Appeal Division went on to hold that the Court did, however, have power to vary or revoke a winding-up order in exceptional circumstances pursuant to its common law jurisdiction. Tom Maher was the senior advocate on the legal team for Lombard Manx in that long running litigation).
In Re Broadsheet, the application before the Court for joinder was made by the applicant under Rules 3.6, 3.8 and 10.10 of the Rules of Court. As the Winding-Up Rules did not contain any specific provision for joinder in these circumstances, the Court held that the Rules of Court procedure for joinder should apply in these winding-up proceedings.
However, the application for joinder under Rule 10.10 (which provides that “a person who is not a party but who is directly affected by a judgment or order may apply to have the judgment or order set aside or varied”) was misconceived. Rule 10.10 of the Rules of Court cannot apply to an order or judgment made under the Winding-Up Rules. Deemster Corlett held that the judgment of the Appeal Division in Spirit of Montpelier was binding on him and that decision made it clear that the Rules of Court cannot be invoked to set aside or vary an order made pursuant to the Companies Act 1931 to 1996 and the Winding-Up Rules.
The Order which the applicant ultimately wished to set-aside (if successful in his joinder application) was an Order of the High Court (reaffirmed by the Appeal Division) made under sections 185(3) and 205 of the Companies Act. Rule 10.10 of the Rules of Court could not apply to such an Order.
The application for joinder was dismissed by the Court.
Tom Maher acted for the liquidator of Broadsheet. A copy of the judgment can be found here.
12 June 2024
