The government says its loans to the Sefton Group can now be considered lawful after a new, three-way agreement was signed with the company and the Manx Treasury.
Last month a London lawyer said government had acted outside its powers when it made loans to Sefton totalling ?1.75 million - and the action could be ruled unlawful, if tested in court.
The same lawyer has offered a remedy - which Chief Minister Allan Bell told Tynwald today (15 July) has been put in place.
Concern over whether government had the vires or legal authority to make the loans came to a head in June, when expert legal opinion concluded it did not.
That led to the resignation of economic development minister John Shimmin, who had previously assured Tynwald the loans, made under the Enterprise Act 2008, were sound.
Legal expert Richard Moules has since offered three options to put matters on a lawful footing.
He suggested government could regularise the matter under the Financial Provisions and Currency Act 2011; create new legislation to validate the payments retrospectively; or decide not to recover the money.
Mr Bell told Tynwald the first option's been taken - and government has signed a tripartite agreement with Treasury and the Sefton Group to resolve the vires issue, and has put the necessary governance arrangements in place.
Mr Bell added: "As Chief Minister, I do not condone the situation that has arisen and steps are being taken to understand how it occurred and to ensure lessons have been learnt."
"I do, however, believe that the mistakes were made in good faith and we are now in a position where the vires issue is resolved and I am satisfied that the necessary governance arrangements are adequate."
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