The use of the Protected Cell Company (PCC) concept is one of the most significant developments in the world of corporate finance for many years. This flexible new technology is already being used to provide a platform for a broad range of financial transactions, including the provision of a stable and cost-effective platform for securitizations and other transformer activities as well as a diverse range of more conventional insurance and other financial applications.
A cell company can create underlying cells which can hold assets and liabilities segregated from those assets or liabilities held in other cells. This ring-fencing is fundamental to the cell company concept; segregation ensures that cellular assets are only available to creditors and shareholders of that cell. This creates greater certainty and significantly improves on the more traditional single company, multi-class ‘umbrella fund’ holding different asset classes.
A PCC is limited by shares and is regarded as a single legal entity in its own right. However a PCC is distinct from a normal company limited by shares in that it has the ability to segregate and protect its assets in separate cells. This distinction is brought about by two key factors:
The non-cellular part of the company otherwise known as the “core” of the company – this is able to share the management of the company and in doing so able to create numerous individual cells which have their own separate corporate personality.
The cells created by the “core” are able to ring fence differing assets and liabilities within that cell and protect from the assets and liabilities of other cells created. These are known as “cellular assets”.
Each cell created therefore has the opportunity to have its own individual corporate identity, which could influence for example its attitude to income growth, dividend policy and the types of assets held.
Assets and Liabilities
Income earned and other assets of a PCC which are not attributable to a particular cell will form part of the PCC’s non-cellular (“core”) assets.
Those assets which are attributed to an individual cell, are only available to the shareholders and creditors of that cell – shareholders and creditors of another cell having no recourse against them, therefore the assets of one cell will withstand any creditor claim made against it from another cell.
Potential uses for PCCs
Protected Cell Companies are an innovative corporate instrument introduced in several International Business and Financial Centre (“IBFC”) jurisdictions. They can be used for:
- Structured financed businesses that would like to ring fence different business units as financed through different streams.
- Insurance Business: Dynamic structuring for external insurance businesses delivering various insurance solutions such as for;
- Life assurance companies who can legally separate the assets of life, pension and individual policyholders.
- Composite insurers – where the assets of life insurance business need to be legally separated from those of non-life business.
- Conglomerates – where several cells are established, each holding a particular insurance exposure of the parent and segregated, for example, in relation to the various geographical locations, corporate division or types of risk of those exposures.
- Insurance and re-insurance – where insurers or reinsurers can accommodate the differing needs of clients.
- Reinsurance – where finite reinsurance contracts and securitization issues can be placed within separate cells.
- Multi-nationals – where companies can operate their captive insurance, treasury and other functions globally in a single entity using the same core capital.
- Captive insurance companies – segregate distinct areas of risk and activity into different ‘cells’.
- Rent-a-captive – where the owners of the PCC offers capital financing to clients, who, because of their own size, would find it impractical to set up their own individual captive insurance arrangements.
- Collective investment schemes (‘CIS’): Innovative structuring of collective investment schemes with numerous cells conferring varying rights and obligations to investors with various classes of shares. Some of the specific applications of a PCC structure in CIS are discussed below:
- Used in Private wealth management open ended asset allocation umbrella funds where the cellular structure gives the manager the opportunity to operate an asset allocation model efficiently so that investors may have all of their assets in one or two cells instead of managing multiple small portfolios.
- Used in Umbrella or multi-class fund structures affording each individual share class the same limited liability that would be obtained if separate corporate structures were used for each different category of investor.
- Creation of Multi manager ‘rent a cell’ structures where protected cell companies are formed as ‘platforms’ which are used to ‘white label’ to a series of investment advisers.
- As Closed ended listed protected cell companies where each cell in the structure represents a different vintage and replicates the launch of a successor fund to the previous cell.
- As Private equity and real estate ‘deal by deal’ protected cell company structures whereby a series of transactions are structured where the potential target investors have complete optionality over whether or not to invest in any given opportunity.
- Ability to create cells with different strategies, subject to overall objective of the PCC.
- Alternative to normal company structure.
- Single legal entity with ring-fencing of each cell.
- No minimum capital requirement is imposed for the PCC or the cell(s), except in specific case.
- The PCC may effect distributions in respect of cellular shares of a cell by reference only to its cellular assets and liabilities attributable to it.
- Solvency test applies to each cell and not to the PCC as a whole.
- Cost efficient solution as there is the elimination of excess cost and administration burden.
- The PCC can opt to have a single financial statement with all the cells consolidated or separate financial statements in respect of each of its cells.
Valsen Fiduciaries offers a comprehensive range of services and has built considerable expertise in providing tailor-made solutions to clients in respect of the most appropriate vehicle. Our services offering include:
- Formation of the relevant entities within the structure
- Provision of the functionaries, namely resident directors, company secretary and administrator
- Assistance in the preparation of cell appendix/business plan for each cell to be created
- Arranging for creation of cells and amendments to rights and obligations within cells
- Preparation of annual accounts and liaisons with auditors
- Filling of tax returns.
- Provision of company secretarial services and registered office
- Provision of Mauritius resident directors and officers
- Provision of nominee shareholders
- On-going administration including processing of transactions, maintenance of statutory and corporate records and undertaking relevant statutory filings
- Bookkeeping and accounting
- Management of banking facilities
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