cellular structures for families the protected cell company & the incorporated cell company mark...
TRANSCRIPT
Cellular Structures for Families
The Protected Cell Company &
The Incorporated Cell Company
Mark Helyar – Partner
Bedell Cristin, Guernsey
www.bedellgroup.com
Content
•The Protected Cell Company - history & basic structure
•Insolvency provisions
•Attribution of liability / statutory liability of directors
•The Incorporated Cell Company - general characteristics
•ICC “Hybrids” and potential family office applications
PLC
CAPTIVE
Insurance Premiums
Why Segregated Cells ? – The Conventional
Multi – Line Captive
EL
PDBI
MO
D&O
Re
The PCC Captive Structure
EL PD BI MO D&O
PCC “CORE”
Single legal entity
PCC Characteristics
a. A PCC can be formed or converted from an existing (ie ordinary) limited company
b. A protected cell company is a single legal entity
c. The creation of a cell does not create a legal person separate from the PCC
d. The provisions of the Companies Laws, except where specified, apply to a PCC (including insolvency & winding up)
PCC Characteristics 2
a. Current uses = umbrella funds, insurance, rent-a-captive, securitisation & hybrids –recently extended (May 2006) to non-regulated uses (ie asset holding)
b. Not currently able to mix “regulated” uses in Guernsey (ie investment and insurance)
c. Pay dividends according to respective cell and core profits
d. Main benefit is single legal entity with the ring-fenced inter-cellular insolvency protection
e. Consolidated accounts – all cellular shareholders have access to accounts
PCC Basic Insolvency Provision - Post May 2006
Core
Cell A
Creditor
Cell B
Cell C
PCC Basics – Attribution of Liability At Cell Level
“It shall be the duty of the directors of a PCC to keep cellular assets separate and separately identifiable from non cellular assets; and
To keep cellular assets attributable to each cell separate and separately identifiable from cellular assets attributable to other cells”
How does a PCC Director “attribute” liability in Guernsey ?
S.11 PCC Ordinance – a director of a protected cell company shall:
1) Inform any person with whom it contracts that it is a protected cell company; and
2) Identify or specify the cell in respect of which that person is transacting, unless that transaction is not a transaction in respect of a particular cell
Third Parties & Contracts
Between
1) X PCC Limited, for and on behalf of
Cell Y; and
2) X PCC Limited, for and on behalf of the
Core thereof; and
3) Third Party
Example
PCC
CoreCell A Cell B
Contract
Professional
Advice
Can the directors charge fees to Cell B if it was
not made clear that the contractor would advise
Cell B ?
PCC Basics – Guernsey – Default Liability
What is the effect of failing to name a cell ? – S11(2)
1. The directors incur personal liability to that person in respect of the transaction; and
2. The directors shall have a right of indemnity against the non-cellular assets of the company, unless they were fraudulent, reckless or negligent, or acted in bad faith
Restrictions of the PCC - Third Parties & Contracts
PCC CORE
Single legal entity
Third PartyContract
Asset transfers
The PCC - Where Else Since 1997 ?
Panama
Guernsey
Jersey
Barbados
Delaware
Bermuda
BVI
Cayman
Anguilla
Brunei (Dar es
Salaam)
Vermont
South Carolina
Seychelles
Isle of Man
Belize
Bahamas
Washington DC
Rhode Island
St Vincent
Mauritius
Nevis
Pennsylvania
Utah
Iowa
District of Columbia
Oklahoma
Malta
Gibralta
Nevada
XYZ ICC Limited
A IC Limited
B IC Limited C IC Limited
D IC Limited
The Incorporated Cell Company
Each a separate company
The Incorporated Cell Company
Jersey invention - February 2006, Guernsey May 2006
Characteristics -
• Cells are separately “incorporated”, registered, identifiable
and each is a separate legal entity in its own right
• Each cell and the cell company itself has the same directors
and same registered offices;
• The Incorporated Cell Company has responsibility for
maintaining registers of shareholders of each incorporated
cell
The Incorporated Cell Company
• Each cell may have a different memorandum and articles to
the other incorporated cells and the cell company
• The incorporated cell company and each cell submit one
combined annual return
• The incorporated cell company is the only entity within the
structure which is required to create P&L and Balance Sheet
(plus a true and fair view of incorporated cell accounts)
• The cells may elect to become un-audited in the same way
as a conventional Guernsey asset holding company
• Arrangements can be made so that cell shareholders are not
entitled to see the accounts of other cells
The Incorporated Cell Company
• An “ordinary” Guernsey company may elect by special
resolution to become (or cease to be) an incorporated
cell of an ICC, and vice versa (not available in Jersey)
• Incorporated cells pay half the equivalent amount in duty
on share capital as a normal Guernsey company
• Cells can own one another, allowing for vertical as well
as horizontal structuring (ie to create sub-groups)
• Cells can be formed as hybrids
The Incorporated Cell Company – Why ?
1. Perception of “risk” in the PCC structure (unproven)
2. Risk of foreign court not upholding inter-cell PCC protections
during an insolvency where assets outside Guernsey
3. Easier to obtain credit rating of an ICC cell
4. ICC cells can contract with (and own) one another (ie provide
financial guarantees, letters of credit, services etc)
5. ICC cells can own and hold real property – some jurisdictions
do not recognise a PCC cell for this purpose
6. Hybrids may be suitable for complex family office applications
Hybrids – A Little Used Structuring Tool
• Guernsey law allows hybrid guarantee and share capital
mixture for ICC cells
• A hybrid can be structured in a similar way to the European
stiftung or foundation
• Subject to proper tax structuring, more appeal to Europeans
suspicious of the trust concept
• In an ICC, cells can be tailored to suit requirements for large
family office applications (property, investments, estate
planning)
ICC
Cell A
Guarantee ProviderAll voting rights No right to dividends
No right to assets on winding up
Ordinary Capital ShareholderNo voting rights Right to all dividends
Right to all assets on winding up
ICC
Cell A
Cell B
Cell C
Cell D
Investment Portfolio
Property 1
Intellectual Property
Property 2
Cell E LBG
Trustee / Fiduciary
Wasting / High Risk Assets
Conclusions
• PCC now in 40 jurisdictions
• Uses of segregated cell companies for private wealth management
likely to grow further
• Very flexible vehicles for diversification and separation of risk
• The ICC promises to have more uses than simple SPV provision
• Expansion from regulated sector to any form of use allows
segregated cell companies to be utilised for private client purposes
• Hybrids, provided tax advice works, can be very attractive to
European clients
QUESTIONS