Guernsey: Has the Cell Company Come of Age?

Last Updated: 18 May 2010
Article by Mark Helyar

Most Read Contributor in Guernsey, November 2017

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
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
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 you may opt out by clicking here

    Terms & Conditions and Privacy Statement (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

    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’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.


    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.


    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.

    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 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.


    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.


    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.


    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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

    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

    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

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

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