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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