Malaysia: Explore Asia's Only Protected Cell Companies

Last Updated: 11 December 2017
Article by Labuan IBFC Inc.

"PCCs are a flexible structure offering cost-efficient centralised management while allowing for
diversity in mandate, risk coverage and efficient management"

The protected cell company (PCC) was borne as alternative risk management tool in 1997, designed primarily to cater for the needs of self-insuring organisations, especially the captive insurance industry. Apart from the captive insurance industry, PCCs are also now a popular structure in the fund management industry, as part of a larger diverse asset allocation investment strategy.

The core concept underpinning the PCC structure is that it acts as a single and separate entity which in turn has the ability to create multiple cells and provides these segregated cells the ability to take on differentiated assets and liabilities per cell, while allowing each cell to operate independently and providing segregation of these assets and liabilities.

One unique feature of the PCC is that it is a single entity with only one board of the directors, regardless of the number of cells it creates. However, the ownership of the cells and the underlying assets, on the other hand, can be held by different individuals or owners.

Today, there are more than 40 domiciles globally offering some variant of the PCC structure, including Labuan IBFC– the only jurisdiction in Asia to offer both conventional and Shariah-compliant PCCs.

The Labuan PCC

The Labuan PCC was introduced in Labuan International Business and Financial Centre in 2010 in line with the enactment of the amended legislation, Labuan Companies Act 1990 (LCA 1990). Fundamentally, LCA 1990 deals with the establishment, structure and operations of a Labuan PCC while its business activities are governed under the Labuan Financial Services and Securities Act 2010 and Labuan Islamic Financial Services and Securities Act 2010 – for Shariah-compliant PCCs.

A Labuan PCC is essentially a limited liability company that has the ability to form cells. It can be incorporated as a Labuan company or converted from an existing Labuan company. A Labuan PCC is allowed to undertake captive insurance or mutual funds activities (including captive takaful and Islamic mutual funds).

The following paragraphs provide examples of how the PCC's unique character can be best utilised:

Insurance

A Labuan PCC may be used for a range of insurance purposes. These include setting up a PCC captive, life and annuity companies and derivatives structures, this is where the ability of create multiple cells under one PCC core whilst providing segregation of assets and liabilities is key. Life insurance companies, for example, can legally separate the assets of life and individual policyholders. Association insurers, on the other hand, whose members share a common business interest can access insurance arrangements by offering competitive premiums whilst offering legal protection on the assets of the individual members by placing them in various cells.

Moreover, organisations that have presence in various geographical locations can create cells, each offering a particular insurance exposure unique to that area in order to accommodate the differing risk management needs of those areas.

Funds

Building a customised collective investment fund such as a mutual fund from scratch can be a daunting task for new investment advisers. More often than not, the issues of credibility and the lack of expertise from potential customers are always called into question. To avoid these pitfalls, many new investment managers are opting to "white-label" their collective investment fund products that are already offered by established service providers. In this instance, the Labuan PCC structure may be used by an established service provider to offer a collective investment fund product to new investment advisers. It is also possible in turn for the new investment advisers to create cells or multiple cells to cater their multiple business strategies.

In addition to offering a reputable collective investment fund product to their potential customers, the new investment advisers have access to the expertise, assistance from the investment managers, and proper corporate governance.

Cost-efficiency and straightforward process for group companies

Setting up a cell under a Labuan PCC core provides the ability for the cells to operate in an analogous manner. This is essentially similar to a group company consisting of the parent and its subsidiaries that addresses the problem of "cross-class liability" and the segregation of assets in a cost-effective and straightforward manner. In a way, the PCC is able to reduce friction and the complications of setting up a separate subsidiary company. Additionally, the setting up of further cells or "companies" is much simpler with the framework of the core already in place.

In certain circumstances, a Labuan PCC may be a convenient and effective structure for joint venture arrangements when a particular party wishes to retain its ownership of an asset or income stream within the joint venture structure.

Small or middle market companies can also take advantage of setting up a cell as the administration cost tied to a cell is likely to be more affordable than with a traditional standard entity.

Segregation mechanism for businesses with multiple projects

A Labuan PCC also works well as a segregation tool for organisations with multiple businesses undergoing corporate rehabilitation and reorganisation. For example, in the event of winding-up a business, the segregation of asset and liability can be efficiently performed through a Labuan PCC.

Traditionally, businesses holding multiple assets such as ships, aircrafts and property, are structured within a group with the separate subsidiary company holding its respective underlying assets. The Labuan PCC, however, can provide a more efficient and economically viable benefit with a segregated portfolio where each asset is owned separately, whilst having the management of these assets centralized at the core.

An example that illustrates this well is when property developers use a Labuan PCC to set up cells for each of their development projects. This method provides a ring-fencing mechanism for each cell i.e. each development project will carry out its separate and distinct business from the other cells and more importantly, this can be easily dissolved without interfering in the use of the other cells, this comes in handy especially when a development project has been completed and ownership is transferred. And throughout this time there centralised management being executed at the core for all the various cells or companies, which offers cost efficiency.

Shariah-compliant structures

Labuan IBFC is the only jurisdiction in the region, if not the world, to provide shariah-compliant PCCs, providing an option for organisations that either prefers or are mandated to be shariah-compliant in their activities. For instance, companies that are interested to set up a takaful captive or plan to enter into Islamic mutual funds can consider structuring this this option, especially those entities historically based in the Middle East, with plans to penetrate into the growing reinsurance or investment fund markets in Asia.

Substance at the core!

In this age of tax transparency via information exchange it has become essential that companies recognise the importance of substance creation in their domicile of choice. In a PCC structure the required substance would be created at the core of the PCC, as it executes it offers centralised management and control for all the cells beneath it.

And with a Labuan PCC this substance is able to be provided cost efficiently on Labuan island, conveniently situated within Asia's trading day, well supported by the 50 over banks and more than 200 insurance licensees in Labuan IBFC.

Moving forward: Labuan IBFC as Asia's PCC Centre

Labuan IBFC is among the few jurisdictions that offer PCC globally. It is the first to do so in the Asian region and aims to evolve to become the PCC Centre for Asia. Towards this aim, the Labuan PCC offering is expected to be fine-tuned in 2018 order to ensure that PCCs in Labuan remain relevant and robust.

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
 
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 Topics
 
Related Articles
 
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
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

Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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.

Disclaimer

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.

General

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