Gibraltar: Protected Cell Companies: A Guide To Their Implementation And Use*

Last Updated: 24 June 2010
Article by Nigel Feetham

*New Edition PCC Book - A Preview By The Author

I have spent the last few months working on the forthcoming second edition of my book "Protected Cell Companies: a guide to their implementation and use" (co-authored with Grant Jones, a Special Professor of Law at Nottingham University).

Surprisingly, no one had ever written a book on "protected cell companies" despite the fact that such companies were widely used in international business transactions. It spurred us to write the first edition of the book. Although this helped to break down some misconceptions associated with the PCC, there was still a view that this extension of the limited liability of members is too innovative, wholly untested in any court and therefore best avoided. In writing this new book we set out to describe important legal developments since the publication of the first edition, and to demonstrate, through further study, that the concept of statutory segregation of assets and liabilities was not new.

In fact, the principle of limitation of liability whereby the liability of a trader or investor was limited to specific amounts was recognised in commerce long before limited liability under general incorporation law was introduced. The deployment of capital at a large scale (and therefore the very advent of capitalism) had its origins on this one fundamental principle: namely, that a trader or investor would not lose more than the capital and assets he had chosen to put at risk in respect of a particular business or investment. The PCC and other forms of segregated business is an application of this old legal principle. There are now many examples of structures around the world that perform a similar function and a highlight of the new edition of the book is to show that statutory segregation in the corporate form also existed in other jurisdictions before Guernsey enacted its PCC Ordinance and called its new creation the 'PCC'. One must also not lose sight of the fact that the evolution of new business forms is the result of the work of lawyers in the laboratory and that these laboratory tests invariably build on established legal principles. The PCC is no different.

There are thousands of these segregated companies around the world (if we include the US Series LLC, Series Trust and others) and transactions take place across many jurisdictions including Europe and the US. This is not a case of legislation that only exists in some 'offshore islands'.

Among the many materials and cases I have read when compiling this new edition, two are worth highlighting.

First is an article written in 2003 by a leading US academic and prolific writer Professor Larry Ribstein, and his words echo as true today as when they were written:

"The recent past shows that our 'laboratory' of state laws can develop and refine business forms when the business need arises, notwithstanding seeming tax or theoretical impediments. We can promote this laboratory by keeping the road to the future as free as possible of regulatory and tax potholes. There are also ways to encourage evolution. In particular, the future, like the past, owes to the work of lawyers in the trenches, both on behalf of clients in individual cases and at the bar and law-reform level. Preserving this dynamic system is a key to this country's continued prosperity" (LLCs: Is the future here? Business Law Today, Vol 13, Number 2, November 2003).

The second is the insightful judgment of Judge Ware in 1831 in The Rebecca, Case No 11,619, District Court, D. Maine. This was a maritime law case where the judge held, after giving an extensive account of the history of the legal principle under maritime law, that a shipowner's liability was limited to the value of the ship and its freight:

"The maritime law... has, on principles of general policy, restricted him [a creditor] to a particular fund, it not only permits him to proceed directly against it in specie, but gives him a privilege against it over the general creditors of his debtor [shipowner]. This privilege, so far from being dangerous and embarrassing to commerce, as it was represented at the argument, appears to me to be perfectly natural and just, and entirely in harmony with the general spirit of maritime law...This form of contract was probably suggested by the extreme perils attending on all commercial operations, in those ages of barbarism and disorder, and more particularly on those of maritime commerce.

The profits of trade in those times were great and tempting, in proportion to the greatness of the risk, and by this contract men of capital were enabled to participate in these profits, without putting at hazard their whole property. It therefore had a direct and powerful influence in drawing out dormant capital, and putting it into a state of activity, and by thus giving a new impulse and greater extension to commerce, to render capital at once more productive to the owner and more beneficial to the community. It was, in fact, in the primitive ages of trade, one of the most powerful springs by which maritime commerce was carried on." In essence, the 1831 claimant run the familiar argument (and failed!) that to limit liability to a particular fund was contrary to public policy.

The above are just some of the themes which are developed in the new book. The first edition of this book was based on the law as at 24 January 2008. We pointed out back then that there was a dearth of legal authority and detailed commentary on the subject of the protected cell company. Since then there have been developments on different aspects of this subject.

On the judicial front, the proposed amalgamation of a PCC with a conventional company was the subject of judicial decision in Guernsey (the original home domicile of the PCC), whilst a decision of the tax appellant tribunal in India found in favour of a foreign taxpayer incorporated as a PCC.

There has also been a helpful tax ruling issued by the Australian Tax Office recognising the PCC structure. The first redomiciliation (migration) of a PCC between EU Member States took place in 2008 and many new cell companies have been set up over the last two years. Also, the PCC has been involved in several cross border litigation cases. Finally, in the context of a non-EU insolvency, the House of Lords decision in McGrath v Riddell [2008] UKHL 21 has come to the aid of the PCC. In this second edition, chapters have been updated to take account of these and other developments whilst retaining the practical emphasis of the first edition.

A positive trend is that more and more lawyers, accountants and institutions are now making these entities available to their clients. In many ways, the subject discussed in the book is no longer just about 'the PCC'. It is about 'segregated business structures' and in future years the PCC will likely become part of this wider subject-matter as what was once seen as a relatively new business form receives international acceptance from professionals, lawmakers, and of course, the judiciary.

I hope the book, in its new edition, will be useful to practitioners, future authors and researchers alike. Readers should continue to send comments and/or materials on any of the subjects covered by this new edition.
www.spiramus.com/protected_cell_companies.htm

www.gibraltarlaw.com

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Nigel Feetham
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.