Guernsey: Twenty Years Of Protected Cell Company Development

Last Updated: 1 August 2017
Article by Dominic Wheatley

Most Read Contributor in Guernsey, July 2017

Guernsey Finance Chief Executive Dominic Wheatley reflects on the progeny of protected cell companies within the region, and their evolution towards becoming a popular tool in the funds sector.

Protected cell company (PCC) structures celebrated their 20th anniversary earlier this year. Originally developed in Guernsey, primarily for use in the island's captive insurance sector, they have since gone on to be used as an alternative application for the structuring of many types of products.

Other jurisdictions have renamed them in an attempt to differentiate, but effectively all cell company legislation globally has been based on that which was originally formulated in Guernsey.

Indeed, while many will be familiar with the use of PCCs in a captive insurance setting, they have at the same time become an established route in collective investment schemes and the funds sector as a whole – being useful in both closed and open-ended funds.

We expect this demand to continue with practitioners so alive to the possibilities they offer.

Cell structures

The essential features of the PCC remain unchanged – a single legal entity comprising a core and any number of cells, with statutory cellular segregation such that the assets and liabilities of one cell are not available to the shareholders and creditors of the core and other cells, enabling cells to run different strategies without the risk of contagion, while enjoying cost savings from being one overall company.

While legislative amendments have tweaked the basic form, such as permitting recourse agreements or cellular arrangements, and enabled conversion, such as enabling a cell to convert into a non-cellular company, the greatest development has been in the uses to which PCCs have been put.

"Twenty years on from their initial purpose, they have a much wider application including SPVs, private wealth vehicles and within securitisations," says Frances Watson, partner at Guernsey-headquartered offshore law firm Mourant Ozannes.

She says it is this flexibility, along with ease of use, speed and lower costs that are the key advantages of the PCC.

"A cell of a PCC is established by board resolution and the established suite of agreements with third-party service providers is simply updated to include each new cell," explains Watson.

Economies of scale are therefore obtained through the PCC being just one legal entity, requiring just one board and one set of service providers, thereby allowing savings to be made on both legal and other professional fees.

In the funds sector, PCC use is most prevalent in vehicles established as umbrella funds with a number of sub-funds – structured as cells. Each cell can have different investment objectives and even different investment advisers.

Mark Douglas, head of Guernsey Fund Services at Moore Management, is one of those who has witnessed the PCC evolution.

He says that while their use in funds is now widely understood, he points out the quirks of the structure, including its adaptation to meet very specific jurisdictional requirements.

"Firstly, it is not possible to mix closed-ended cells with open-ended cells in the same PCC as it is the main structure itself that is approved by the Guernsey Financial Services Commission as either a closed-ended or open-ended fund, with all cells having to have the same characteristics in this respect," he said.

"Secondly, we have recently established a new Shariah-compliant PCC for a client as the articles of the existing PCC contained provisions which were not compatible with Shariah law – for example, the charging of default interest – so it is worth remembering that a PCC has one set of articles that will apply to all cells."

Douglas agrees with Watson that reduced costs and time of setting up new funds or cells due to operational efficiencies are the main selling points of PCCs.

"Regulatory application fees are significantly reduced for new cells of an open-ended PCC compared to standalone funds while for a closed-ended PCC, new cells can be established very quickly as they only require a notification to the local regulator," says Douglas.

Continued development

Zedra's Guernsey office has one of the oldest PCCs in its product suite – the ZPCC, established in 1999. It has been widely used since then both in the UK and around the world by many managers and parties as a tax-efficient investment vehicle (by virtue of being granted UK reporting fund status on a cell-by-cell basis) and for making sizeable investments into the whole spectrum of asset classes ranging from plain vanilla to real property, private companies and other alternative investments.

Zedra director Mark Cleary sees further life for not only the ZPCC structure – now in a more mature phase of its life cycle – but for PCCs generally.

"Twenty years is not a long time in the grand scale of things, but it nonetheless remains incumbent to imagine what other untapped uses and opportunities yet to be thought of and how we might exploit these," he said.

"Guernsey offers a compelling blend of stability, institutional robustness and access to first-class professional services, track record and the rule of law and respect for property rights. These circumstances provide all the essential nutrients to attract managers and investors."

In addition to creating the PCC, Guernsey has subsequently introduced incorporated cell company (ICC) legislation, with the aim of enhancing creditor protection and offering additional flexibility. While the ICC has the same principles of statutorily ring-fencing assets and liabilities, it achieves this through each incorporated cell being its own legal entity. This means the ICC can offer a lower cost solution but with the potential advantages of each incorporated cell being a separate legal entity.

For Steve Butterworth, director of insurance at the Guernsey Financial Services Commission until 2003 and the man widely credited with developing Guernsey's PCC concept, further evolution would tally with how he foresaw the structure eventually being used.

"I always thought that once the concept became internationally accepted, its use would become widespread across financial services," says Butterworth. "That has been the case, but I am still surprised at some of the areas it is not more widely used, including by institutions for mergers, acquisitions and disposals."

"It is an ideal piece of legislation for a banking group, especially to ring-fence assets and liabilities. As a result, there is still development and diversification to come in the area of PCCs."

Innovation

While the 20-year anniversary of the PCC has been highlighted, Guernsey's innovative streak is still in effect today, with the recent launches of the Manager Led Product – aimed at alternative investment fund managers seeking to market into one or more EU member states under the national private placement regime – and the Private Investment Fund (PIF), which recognises that certain investment funds are characterised by a relationship between management and investors that is closer than that of a typical agent. The PIF has already generated significant attention with two launched towards the end of April, just four months after the new structure was developed and released to the global investment community.

Guernsey also recently saw the first commercial deployment of blockchain technology – a distributed database that maintains a continuously growing list of ordered records which is inherently resistant to modification.

As a leading international finance centre, we look forward to continued innovation emanating from the jurisdiction in the years to come. 

An original version of this article was first publish in HFM Week, June 2017.



For more information about Guernsey's finance industry please visit www.guernseyfinance.com.

www.guernseyfinance.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
 
In association with
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.