Introduction
In July 2005 the States of Jersey approved the Companies (Amendment No. 8) (Jersey) Law, 2005 (the "Amendment"). The legislation came into force on 1 February 2006 and included provisions relating to the use of protected cell companies and incorporated cell companies. To date more than 90 protected cell companies and more than 70 incorporated cell companies have been incorporated in Jersey.
PCCs and ICCs
The Amendment permits the incorporation of two types of cell company: protected cell companies ("PCCs") and incorporated cell companies ("ICCs").
In essence, cell companies are companies whose assets and liabilities may be attributed to a particular separate cell of the cell company or to the cell company itself.
A PCC is a separate legal entity but its cells are not bodies corporate and do not have a legal identity separate from the PCC of which they form part. Notwithstanding this fact, a cell of a PCC is treated as a company for the purposes of the application to it of the Companies (Jersey) Law, 1991 (the "Law").
ICCs are similar in many respects to PCCs. However, each incorporated cell of an ICC is a company in its own right (albeit also as a cell of the ICC).
The purpose of cell companies
Although there are many advantages to incorporating ICCs and PCCs (see below), their principal benefit is the segregation of assets and liabilities within separate cells. Whilst it is possible to seek to create separate pools of assets through the use of contractual "ring-fencing" and non-petition provisions, there can be a risk of cross-contamination of assets where, for example, certain creditors are not party to such provisions or where claims are presented in breach of contractual provisions.
The Amendment creates the framework for statutory "ring-fencing" of assets and provides that (unless the constitutional documents provide otherwise and the directors of the cell company make a prescribed solvency statement) where a creditor enters into a transaction with a particular cell of a cell company any claim in connection with the transaction extends only to the cellular assets of the relevant cell. No recourse is available to the assets of any other cell or to the cell company's other assets.
Other features of cell companies
Names
The name of an ICC must end with the words "ICC" or "Incorporated Cell Company". The name of a PCC must end with the words "PCC" or "Protected Cell Company".
Memorandum and Articles of Association
Each cell of a PCC/ICC will have its own Memorandum and Articles of Association separate to that of its cell company.
Directors, secretary and registered office
There is no requirement for commonality of Directors across the cell of a cell company and the cell company itself. A cell of a cell company must have the same secretary and registered office as its cell company.
Structuring/restructuring
The availability of wide-ranging structuring and restructuring provisions is a key benefit of the Jersey cell company. Subject to the Law:
1. a company can convert into a cell company (and vice-versa);
2. a PCC can convert into an ICC (and vice-versa);
3. a company can convert into a cell of a PCC/ICC;
4. a cell can convert into a separate company;
5. a cell can be transferred from one cell company to another;
6. a cell company can be merged with another cell company; and
7. (subject to suitable reciprocal arrangements) a non-Jersey cell company or company can be migrated into Jersey as a cell company.
Winding up
The provisions of the Law in relation to winding-up and bankruptcy proceedings apply to PCCs and ICCs cell companies as they do to non-cell companies. It is possible to wind-up or declare bankrupt a cell or (providing there are no remaining cells) the cell company.
Transactional uses
The concept of statutory ring-fencing lends itself well to the following structures:
1. secured note programmes;
2. umbrella funds;
3. Sharia compliant structures;
4. joint ventures; and
5. property holding structures.
Advantages of Jersey cell companies
In addition to the provisions set out above in relation to segregation of assets, cell companies also have the following additional benefits:
1. separate profit and loss accounts for each cell;
2. ability to set thresholds for amending the Articles of Association;
3. fee savings – PCCs need only pay one exempt company fee (£600) regardless of the number of cells created;
4. no limitation on the use of cell companies as in other jurisdictions;
5. cells of a cell company can contract with each other;
6. cells of a cell company can own shares in each other;
7. no administration/receivership provisions;
8. no automatic stay on the enforcement of security (which has been problematic for rating agencies in other jurisdictions);
9. the failure of directors to act appropriately does not prejudice "ring-fencing";
10. the ability to have cells which create shares without reference to the members or shares of the cell company; and
11. rating agencies have already rated a number of deals involving Jersey PCCs and ICCs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
