Jersey: Jersey Cell Companies

Last Updated: 13 July 2008

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 60 protected cell companies and more than 50 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")).

Incorporated Cell companies 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).

Other jurisdictions such as Bermuda, Guernsey and the Isle of Man have introduced structures similar to PCCs but the Amendment has been drafted to take account of problems encountered on these earlier structures as well as introducing the concept of the ICC. ICCs and PCCs therefore represent the 2nd generation of "segregated portfolio vehicles".

THE PURPOSE OF CELL COMPANIES

Although there are many advantages to incorporating ICCs and PCCs (see below) their principal benefit is in 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 such 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

A cell of a cell company has the same directors, secretary and registered office as its cell company.

Register, accounting records and annual return

A cell company will be responsible for (1) maintenance of the register of members of each cell; (2) annual returns of each cell; and (3) preparing separate accounting records for each cell.

Structuring/restructuring

The availability of wide ranging structuring and is a key benefit of the Jersey cell company. Subject to the Law a company can convert into a cell company (and vice versa), a PCC can convert into an ICC (and vice versa), a company can convert into a cell of a PCC/ICC, a cell can convert into a separate company, a cell can be transferred from one cell company to another, a cell company can be merged with another cell company and (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 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. ability to entrench directors and secretary of cells;

  4. fee savings - PCCs need only pay one exempt company fee (£600.00) regardless of the number of cells created;

  5. no limitation on use of cell companies as in other jurisdictions;

  6. cells of a cell company can contract with each other;

  7. cells of a cell company can own shares in each other;

  8. no administration/receivership provisions;

  9. no automatic stay on enforcement of security (which has been problematic for rating agencies in other jurisdictions);

  10. failure of directors to act appropriately does not prejudice "ring-fencing";

  11. ability to have cells which create shares without reference to the members or shares of the cell company; and

  12. rating agencies have already rated a number of deals involving Jersey PCCs and ICCs.

CELL COMPANY DEVELOPMENTS

Although the cell company regime has been well received in Jersey a number of proposals are already being considered to develop and improve the regime. These include:

  1. an amendment to the requirement that the Directors of a cell company and its cells must be the same;

  2. a repeal of the requirement that a cell company must keep accounting records for each cell; and

  3. simplifying the procedure for the transfer of cells (which currently include a level of shareholder and creditor approval, solvency tests or alternatively court approval).

This advisory is only intended to provide basic information and should not be relied upon as a comprehensive statement of particular law.

Jersey

James Gaudin, Partner

Michael Johns, Partner

Cayman Islands

Diarmad Murray, Partner

London

David Whittome, Partner

British Virgin Islands

Jack Husbands, Partner

Hong Kong

Hugh O'Loughlin, Partner

Dubai

Rod Palmer, Partner

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.

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