New Companies Law - Protected Cell Companies And Incorporated Cell Companies

Introduction

A cell company is a company that has the ability to create one

or more cells with assets and liabilities that are distinct from

the assets and liabilities of other cells and the cell company

itself. These cells can be used to carry out separate and distinct

businesses. Legislation permitting the incorporation of cell

companies has been in force in Jersey since February 2006. Recent

changes to the Companies (Jersey) Law 1991 (the

"Law") have increased the flexibility of

the cell company regime by, for example, removing the requirement

for a cell company and each of its cells to have the same

directors. Taking account of the changes to the Law, this briefing

is intended to provide a general guide as to when cell companies

can be used, the benefits of using a cell company and issues to be

considered when incorporating and using a cell company. Specific

advice should be sought to ensure that any cell company complies

with the Law and is appropriate for the particular transaction.

Overview

Two types of cell companies are available under Jersey law:

the Incorporated Cell Company ('ICC');

and

the Protected Cell Company

('PCC').

ICCs

PCCs

An innovative concept in structuring introduced first in

Jersey.

Similar to protected cell structures or segregated portfolio

companies elsewhere.

Cell is a separate legal entity.

Cell is required to be treated as though a separate legal

entity.

Liability limited by structure (separate legal personality).

Liability limited by procedural rules. Provisions preventing

cellular creditors claiming non-cellular assets provide enhanced

protection.

Can convert to PCC or to general company.

Can convert to ICC or to general company.

Cell has power to contract because of separate legal

personality.

Special provisions allow the cell to contract.

Cell is separate legal entity. Claims limited as a substantive

matter of law to assets of that cell.

Directors obliged to properly separate cellular assets and to

notify and record when contracting for cell.

What are cell companies and when are they used?

A cell company is a company that has the ability to create one

or more cells with assets and liabilities that are distinct from

the assets and liabilities of other cells and the cell company

itself. These cells can be used to carry out separate and distinct

businesses. Each cell has a separate memorandum and articles and

its own members. Members of the cell company will not necessarily

be members of a cell. A cell company may be a public or private

company, a par value or no par value company, or a guarantee

company, and can be a limited or an unlimited company. Provision

can be made for cells to be dissolved or wound up in certain

events.

A feature of the Jersey legislation is that neither an

incorporated cell of an ICC nor a protected cell of a PCC is a

subsidiary of the relevant cell company solely as a result of the

cellular dependency. A cell may invest in any other cell of the

company, subject to its articles of association, although a cell

may not invest in the cell company itself.

Historically, the concept of a cell company was developed for

use in relation to umbrella investment funds and to assist in the

management of investment pools supporting separate lines of

insurance business. However, Jersey cell companies have been used

for a wider range of applications in financial services businesses

and structured finance activities.

What is the difference between an ICC and a PCC?

An ICC adopts a fundamentally different approach to cells. The

ICC incorporates each cell as a separate legal entity without the

cell company needing to have any shareholder relationship with the

relevant cell.

The principal difference therefore is that an incorporated cell

of an ICC is treated as a separate company whereas a protected cell

of a PCC is not a body corporate and has no separate legal

identity.

Why did Jersey introduce ICCs?

The concept of the incorporated cell was developed in response

to concerns regarding the effectiveness of the ring-fencing and

liability segregation provisions in relation to the

'traditional' protected cell structures established in

other jurisdictions. Concerns have been raised that protected cell

structures established outside Jersey do not provide adequate asset

protection where there is a risk of involuntary cross-default

across cells. This can arise because of a disparity in risk profile

between cells or...

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