Cell Structures in Guernsey

22 September 2016

There are two types of cell companies:

  • The Protected Cell Company(PCC); and
  • The Incorporated Cell Company (ICC) and its Incorporated Cells (ICs)

These are similar to segregated account companies used in some other jurisdictions. It is becoming a well recognised structure amongst international finance centres.

Protected Cell Companies

Legal Structure

A PCC is a single legal entity with separate and distinct “cells” within it. Each cell may, but is not required to, have cell shares. A cell of a PCC cannot contract in its own name; it is the PCC which will be the contracting party, in respect of the relevant cell which must be identified.

Uses

When the concept of PCCs was first introduced in Guernsey in 1997, only collective investment funds and insurers could be established as PCCs.

Today, PCCs in Guernsey can be used for most businesses provided that they are administered by an entity licensed by the Guernsey Financial Services Commission ("GFSC").

 

Beyond the funds and captive/life insurance markets, they are popular as asset-holding vehicles and segregated investment vehicles for high net worth individuals.

Legal segregation & Position of Creditors

Assets and liabilities of cells in a PCC are, by law, segregated from those of other cells and those assets are not available to creditors of other cells in an insolvency. Recourse beyond the cell is permitted only in certain circumstances.

In every transaction entered into by a PCC in respect of a cell, there is an implied provision that no party shall seek, whether in any proceedings or by any other means whatsoever or wheresoever, to make or attempt to make liable any cellular assets attributable to any other cell of the PCC.

Dividends

A PCC may pay a cellular dividend in respect of cell shares by reference only to the cellular assets and liabilities, or the profits, attributable to the relevant cell. In determining whether or not profits are available for the purpose of paying a cellular dividend, no account need be taken of:

  • the profits and losses, or the assets and liabilities, attributable to any other cell of the company; or
  • non-cellular profits and losses, or assets and liabilities.

Directors’ Duties

It is the duty of the directors of a PCC:

  • to keep cellular assets separate and separately identifiable from non-cellular assets;
  • to keep cellular assets attributable to each cell separate and separately identifiable from cellular assets attributable to other cells;
  • where transacting in respect of a cell, inform third parties of this fact.

 

 

 

 

 

 

 

 

Incorporated Cell Companies and Incorporated Cells

Legal Structure

An ICC is a legal entity, as are each of the ICs associated with it.

The ICC and each of its ICs have the following in common:

  • Secretary; and
  • Registered office.

A Guernsey ICC and its ICs also have a common board of directors. 

A single annual return or validation is filed for the ICC containing information relevant to each IC.

ICs contract in their own names as they are separate and distinct entities from their ICC.

Legal segregation & Position of Creditors

Legal segregation is achieved by reason of the fact that an ICC and an IC are each distinct corporate entities. The position of creditors is the same as for a normal corporate entity. ICs contract in their own name hence there is no issue of cross liabilities within an ICC.

An ICC is a legal entity, as are each of the ICs associated with it.

Common Uses for PCCs and ICCs

Investment Funds

Both PCCs and ICCs offer an efficient way for fund managers to launch multiple  funds with minimal set up time whilst benefitting from significant economies of scale.

 

 

By establishing a new cell or IC for each fund, the investor prospectus in respect of the core or the ICC will remain the same, whilst engagements with managers, administrators and custodians can continue unchanged, with those agreements simply being extended to cover the new cell or IC. The PCC or ICC will also benefit from the fund structure having already been reviewed and approved by the GFSC, leading to a fast turnaround for regulator authorisation for additional cells or ICs.

Presently there are over 100 PCCs and ICCs operating in this way in Guernsey.

Listing Securities on the Channel Islands Securities Exchange

Both PCCs and ICCs are common vehicles used in listing securities, whether debt or equity, on the Channel Islands Securities Exchange (CISE). As a regulated exchange, a listing on the CISE can provide the PCC or ICC with access to investment from UK based pension schemes and can help in mitigating UK withholding tax on interest payments.

Typically a listing document for a PCC or ICC is structured in two parts, the Scheme Particulars which relate to either the Core or the ICC, together with the supplemental particulars which provide specific information in respect of each cell or IC.

In a similar way to investment funds, detailed above, PCCs and ICCs can benefit from significant economies of scale when listing multiple securities. Where a PCC or ICC wants to issue a new listed security, a new cell or IC can be quickly established, with engagements with listing sponsors, investment advisors, brokers or market makers simply being extended to the new cell or IC. The approval process with the CISE can also be streamlined, as they will have already reviewed and approved the information in respect of the core or IC in advance.

Presently there are 30 Guernsey PCCs and ICCs, with 185 cells and ICs, with securities listed on the CISE.