Gibraltar implemented Protected Cell Company legislation in 2001 and was the first European jurisdiction to do so. Since then Malta has implemented a PCC Act and the UK itself has introduced its own regime for Open Ended Investment Funds.
Whilst the exact number of companies operating as protected cells across the European Union is not known, it is likely to be over one hundred in all jurisdictions and sectors. It is also of note that in Europe a PCC insurance company has the distinct advantage that the EU Insurance Insolvency Directive requires mutual recognition of a local insolvency process (which in the case of a PCC must include PCC insolvency). The same applies to cross frontier insolvencies under the European Insolvency Regulations. Therefore as a general rule an EU PCC insolvency should be respected across the EU.
On the 9 May 2014, the Supreme Court of Gibraltar heard two applications, one application for the transfer of the insurance business of a Gibraltar PCC to an EEA insurer under Part I of Schedule 10 of the Financial Services (Insurance Companies) Act, and a separate but consequential application for the transfer of the cellular assets under the Protected Cell Companies Act. The proceedings were held in open Court.
The case appears to be the first cross-border portfolio transfer within the EU of the insurance business of a PCC to a non-PCC.
Under Gibraltar law a transfer of insurance business from a Gibraltar life insurance company to another insurer requires Gibraltar Supreme Court approval. It should be noted, however, that no Court approval is required for portfolio transfers by general insurance companies; only the approval of the local regulator the Financial Services Commission ("FSC") is required in that case and several such transfers have previously been approved by the FSC. The equivalent regime in the UK is the Part VII transfer provisions.
As would be expected, the initial Gibraltar 'Part VII' equivalent process involves extensive consultation with the FSC before any application is submitted in Court. Any FSC requirements are then discussed and agreed. The Gibraltar legislation transposes all the requirements of the relevant EU Insurance Directives, including in respect of publicity of the application, policyholder notifications, and 'home state' consultation with the relevant EEA regulators. Applications are therefore matters of public record.
Under the Court process, the Judge is taken through the affidavit evidence by counsel for the applicant, especially the Independent Actuary's Report and each statutory requirement that the applicant has to comply with in order to obtain the Order sought. Like in the UK, the FSC is entitled to be heard at the Court hearing but its views are not binding on the Court.
Policyholders can object to the proposed transfer by contacting the applicant or the FSC, and also, they have a right to object directly to the Court. It should be noted, however, that the question of approval of the scheme is one for the Court alone.
In this case, the Judge also had to consider the consequential application for a Cell Transfer Order under the Protected Cell Companies Act. These provisions apply to every PCC regardless whether business is being transferred from an insurance company or not. The PCC would be obliged to obtain the approval of the Court before the transfer of the business can be made (save for transfers from cellular assets in the ordinary course of the company's business).
This case is interesting for several reasons. Whilst the Orders were not accompanied by a written decision of the Court and therefore its precedential value may be limited, it is the first portfolio transfer in Gibraltar under Part I of Schedule 10 of the Financial Services (Insurance Companies) Act and under the Protected Cell Companies Act. This should be helpful for the further expansion and development of local portfolio transfers. In some jurisdictions insurers may push back from Court approved portfolio transfers because of the real complexity of such applications (even for experienced insurance practitioners) in the absence of local judicial precedent. In this case, the approach of the Court was to satisfy itself that all the procedural aspects of the relevant legislation had been complied with, going through each statutory provision in turn and affidavit evidence in support, whilst relying on the independent expert.
Finally, the case is important because of the very limited history of cross border transfers of a PCC to a non-PCC anywhere in the world. This transaction has therefore provided helpful clarity of possible judicial attitudes for future PCC transactions.
As is usual with Part VII transfers in the UK, copies of relevant documents were also available for download from the Gibraltar insurance company's website (including the Court Petition and Independent Actuary's Report).
Nigel Feetham is a partner at Hassans law firm and visiting professor at Nottingham Law School, Nottingham Trent University. Nigel is also the author or co-author of a number of books, including Protected Cell Companies: a Guide to their Implementation and Use (2nd edition), co-authored with Professor Grant Jones. He has consulted widely for clients on protected cell companies. Nigel also acted for the Gibraltar Financial Services Commission in the Court proceedings mentioned in this article.
Hassans was founded in 1939 and is the largest law firm in Gibraltar with 36 partners, over 55 other lawyers and 250 staff in total.
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The firm has an international clientele, links with major European and US law firms and has consistently been listed as the leading law firm in Gibraltar by Chambers and Partners and Legal 500 across the majority of its practice areas. http://www.gibraltarlaw.com/.
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