Guernsey: Has the Cell Company Come of Age?

Last Updated: 18 May 2010
Article by Mark Helyar

Most Read Contributor in Guernsey, September 2018

This article was originally published in MENA Fund Manager, Issue 7 (May 2010)

Mark Helyar of Bedell Cristin in Guernsey outlines why the Protected Cell Company concept born in Guernsey in 1996 has become a worldwide success story

The protected cell company was first created in Guernsey in 1996, as a significant refinement and development of a type of segregated portfolio company then utilised in Bermuda. Its first and primary use was in the risk management sector, to enable liabilities relating to insurance or reinsurance policies to be segregated from assets which did not derive from or relate to the premiums and reserves relating to those specific policies and underlying risks by separating them into different individual 'cells'.

This ability to segregate, protect or ring-fence assets and liabilities enabled much simplified risk management and improved confidence and security, and reduced a significant risk for insurance companies with multiple lines who were at risk of contagion of assets as a result of a catastrophic event affecting one risk but eating up all of the assets of a company. In some cases the type of event which could cause such contagion were entirely unexpected, such as the major revisions in the 1990s to the mortality rates of persons exposed to asbestos where increased liabilities caused in-solvencies worldwide.

It is a basic precept of company governance that assets and liabilities should be matched, but with increased complexity can come a dangerous lack of transparency and unintended con-sequences or synergism which is not anticipated. The Equitable Life saga aptly demonstrated to the financial community how difficult managing a wide group of risks from one fund could be in the event of a significant failure of one risk class. Had Equitable been structured as a PCC with its funds separated into cells then its liabilities to certain types of risk would have been far more transparent and therefore easier for its board to manage.

It soon became evident that the protected cell company or PCC could be utilised to segregate investment assets too, and they began to be used very quickly for umbrella funds, enabling simplification of governance and reduction of complexity and cost whilst at the same time providing protection from insolvency of other cells. This enabled a single investment fund to run a range of different investment opportunities and to separate them according to the risk profiles of investors, or by asset type or currency and to ring-fence profits (or losses) whilst having the economy of scale of a single company with a single board of directors.

Developments since 1996

The concept has become so successful that more than 40 jurisdictions world-wide now have PCC-style legislation. In many places that legislation is very closely based on Guernsey's original 1996 legislation and Guernsey lawyers are often called upon to assist and ad-vise with the development of legislation. Many people are often surprised to find that the US has a number of states with similar legislation, although the companies and legislation are of-ten called by different names such as segregated asset companies or 'SACs'. In common with many other countries, this type of company is of-ten restricted to use in the insurance, investment or other regulated sectors where there is a higher level of regulatory supervision.

So what was wrong with the original PCC legislation which needed to be changed? Various problems arose quite early on in the life of PCC's, the first being the general presumption in the original law that a creditor could, having used up all the assets of the cell with which he had a debt, go against assets of the core of the PCC. This meant that often cumber-some arrangements in writing needed to be made between the PCC and every creditor to ensure that they had no recourse to core assets (or in other words only to the assets of the cell with which they had a contract). To correct this problem the law was amended to limit liability only to cells, unless it was specifically agreed that recourse could be had to core assets, or in other words reversing the presumption.

An early problem was also the tendency for mistakes to be made by administrators in drafting contracts and particularly in attempting to make contracts between cells or between cells and the core of a PCC. There was a tendency to think of the PCC as a group of small companies rather than groups of segregated assets. In some cases quite elaborate contractual relationships were attempted. As the PCC is a single legal entity, it was thought by practitioners not to be possible to create a contractual relation-ship because a breach of contract could never be enforced.

This issue was further compounded when practitioners in the investment fund industry wanted to be more flexible in the way in which investors could exchange shares in one cell for the shares in an-other. Eventually the law was amended to allow for what are classified as 'arrangements' whereby directors have more flexibility in determining whether a liability should be a mixed one of a number of cells, or otherwise. This enables arrangements to be made which are similar in operation to contracts but provide protections for creditors by having a statutory right to apply to the courts to reverse an arrangement if prejudice is caused. Arrangements therefore allow for apportionment of variable costs (such as audit fees) between cells, for example.

Recent times and the future for the investment PCC

In practical terms, a PCC fund will usually have a main prospectus which deals with the issues common to the PCC, its directors, the provisions of the articles and other generic issues such as regulatory status and generic risk warnings applicable to all cells. Each cell will then have its own (usually much thinner) bespoke supplement which will deal with the investment profile and any asset-specific risk warnings.

This flexibility means that the creation and licensing of new cells is relatively straightforward and cheaper than creation of a new standalone fund. In the case of open-ended funds the costs can be significantly lower. This is particularly appealing to promoters looking to achieve economies of scale, or to launch smaller investment vehicles with lower initial costs. For many years in the insurance industry there has been the familiar concept of a PCC which is owned and controlled at its centre by an administration firm, but which 'rents' or allows its cells to be used by third parties. Interestingly, there are now some PCC funds which will entertain enquiries from third-party promoters to create new cells within an existing PCC fund platform. As the PCC cell is really a separate class of shares and can be formed by simple resolution, it is fast and flexible. The development of the use of PCC funds in this way could pro-vide a cost-effective platform for new investment funds, particularly in the current market where start-up costs and a more heavily regulated market are potential barriers to new initiatives. A 'rent-a-fund' PCC could provide a number of benefits already seen in the insurance industry:

  • Already licensed therefore quick to market
  • Board and administrator already known to regulator
  • No need for extensive legal work or structuring, tax advice or finding non-executive directors
  • Simple 'standard' core documentation leaving only bespoke supple-mental prospectus
  • Independence of control from promoters/managers
  • Transparency by not mixing multiple strategies/portfolios
  • Ability to use company legislation to turn a successful cell into a stand-alone fund if it reaches sufficient critical mass (for example an 'incubator' for new investment funds).

This type of investment fund platform could be a useful tool in the future for the incubation of smaller, be-spoke investment funds, whether open or closed ended.

Good assets versus bad assets

Two key issues arising from the financial crisis have been how to manage the transparency of financial instruments in the future and crucially how to prevent high-risk assets circulating in an opaque market from causing paralysis and contagion. One way in which to do that at a fundamental level is to conduct effective risk management through identification, separation and protection of good quality as-sets from poor quality, high-risk ones. There are many good reasons why the increased use of segregated cell companies like the PCC could be good for protecting assets and managing risks better in the future. Perhaps it is time that the PCC as a major offshore risk management innovation was taken onshore and mainstream to allow better risk management by a progressive regulator or government?

For more information about Guernsey's finance industry please visit

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

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

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions