This Second Edition of Protected Cell Companies is a valuable resource for practitioners who work with this important new business form. The Protected Cell Companies Act was first introduced in Guernsey in 1997 and other jurisdictions have followed this path. This gave rise to the First Edition of this book which contained the legal analysis essential to further use and development. The book provides comprehensive guidance on such complex issues as insolvency, veil-piercing, tax, and accounting. As lawyers and business people have come to understand the PCC its uses have spread from its origins in captive insurance companies to providing a bankruptcy remote vehicle for special purpose vehicles, credit derivatives, and open-end investment companies. The authors show that PCCs are now widely used by insurers, insurance brokers, banks, investment and fund managers and international tax planning advisers. They also describe the use of PCCs and related devices not only in their originating jurisdictions but in the EU, the US and around the world. This new edition contains substantial additions but with the same practical emphasis of the original book.
Format: 234mm x 156mm
Format: 234mm x 156mm
Table of Contents
AcknowledgmentsAbout the Authors
Preface to the Second Edition.
Foreword to the Second Edition.
Foreword to the First Edition.
Tables of Authorities xxviii
Introduction
1. RING FENCING AND THE EVOLUTION OF THE CELL COMPANY
1.1........... The Cell Captive
1.2........... The Cell Captive structure: how does it work?
1.3........... Claims Limitation
1.4........... Unfair Contract Terms Directive
1.5........... Why the need for the protected cell?
1.6........... Repackaging
1.6.1............ What is a repackaging?
1.6.2............ Asset Swap
1.6.3............ The Special Purpose Vehicle
1.6.4............ Credit-linked Notes
1.7........... Funds
2. THE ADVENT OF THE PCC
2.1........... The Challenge
2.2........... Substantive versus procedural
2.3........... Location of assets, custodian and Collateral Directive
2.4........... Beware of claims that may not be limited! Especially involuntary creditors
2.5........... Provisions of Gibraltar (and Guernsey) PCC legislation
2.5.1............ Requirements on incorporation/conversion
2.5.2............ Duty to inform third parties
2.5.3............ Separation of assets
2.5.4............ Share capital
2.5.5............ Administration
2.5.6............ Cells are not legal entities
2.6........... Entrenchment
2.7........... Market acceptance and respecting the intention of the parties
3. SERIES LLC: AN ANALOGOUS BUSINESS FORM TO THE PCC
3.1........... Delaware
3.2........... US Case-law
3.3........... SEC Prouncement
3.4........... Statutory segregation under Italian law
3.4.1............ “Allocation of dedicated assets to specified business activities”
3.4.2............ “Financing allocated to a specific business activity”
4. THE INSURANCE COMPANY PCC: WITH A FOCUS ON THE EU
4.1........... What is a captive?
4.2........... Application of the PCC concept
4.3........... Lloyd's of London and the PCC
4.4........... Fronting versus Risk Bearing Cell
4.5........... Future developments
4.6........... Solvency II
4.7........... Summary
4.8........... Documentation
5. MANAGING A PCC CAPTIVE
5.1........... Regulatory
5.2........... Branch or Services?
5.3........... Will the intermediary/service provider be subject to the direction and control of the Insurer?
5.4........... Is the intermediary able to commit the Insurer?
5.5........... Has the intermediary received a permanent brief from the Insurer?
5.6........... Freedom of Services
5.7........... Governing law and jurisdiction clauses
5.8........... Should the PCC structure be offensive to a regulator?
5.9........... Who should perform the compliance function?
5.10......... Cell Management Contract
5.11......... Directors' Duties
5.12......... Checklist of Dos and Don'ts
6. GROWING MARKET FOR THE PCC
6.1........... The PCC and the Investment Fund
6.2........... The PCC in the world of Structured Finance
6.3........... Portfolio transfers and the potential use of the PCC
6.4........... Is the use of the PCC a possible solution for the UK pensions problem?
6.5........... Shariah law and the PCC
6.6........... The PCC Life Company
6.7........... The Credit Crunch and Madoff
6.8........... Could a PCC redomicile between jurisdictions or amalgamate?
6.8.1............ Why should a PCC be objectionable to a foreign jurisdiction?
7. BASIC INSOLVENCY PRINCIPLES RELEVANT TO PCCs
7.1........... Pari Passu
7.1.1............ Pari Passu and PCCs internationally
7.2........... Hotch pot
7.3........... ‘Pro-Creditor' v ‘Pro-Debtor'
7.4........... The Insolvency Practitioner
7.5........... Internationalism v Nationalism
7.6........... Seat Theory v Centre of Main Interest (COMI)
7.6.1............ Rescue Culture
7.6.2............ Transnational and International Insolvency Regimes
7.6.3............ Preferential or priority creditors and involuntary creditors
7.6.4............ Secured or in rem creditors
7.6.5............ Antecedent transactions or detrimental acts
8. EU REGIMES: AN INTRODUCTION
8.1........... Background
8.2........... Relevant EU Directives and Regulations; an introduction
9. THE EU REGULATION: AN OVERVIEW
9.1........... The EU Regulation: a detailed analysis of its PCC relevant provisions
9.1.1............ Introduction
9.1.2............ Article 1. Ambit
9.1.3............ The initial question
9.1.4............ Article 3 - international jurisdiction - the centre of main interest or COMI
9.1.5............ Article 4 - law applicable - Renvoi
9.1.6............ Article 5 - third parties rights in rem, i.e. secured rights of third parties
9.1.7............ Article 6 - set-off
9.1.8............ Article 11 - effects on rights subject to registration
9.1.9............ Article 13 - detrimental acts (or “antecedent transactions”)
9.1.10.......... Article 20 - return and imputation - “the hotch pot rule”
9.1.11.......... Article 26 - public policy
9.1.12.......... Article 32 - exercise of creditor rights
9.1.13.......... National exceptions within the EU
9.2........... Part 1 of the Gibraltar PCC Act of the EU
9.2.1............ Section 3 - PCC “Formation and Attributes”
9.2.2............ Section 6 – “the position of creditors”
9.2.3............ Section 8 – “Cell shares and share capital”
9.2.4............ Section 13 – “Liability of cellular assets”
9.2.5............ Section 15 – “Company to inform persons they are dealing with... [PCC]”
9.3........... Parts II (sections 19-23) and III (sections 24-28) - Receivership and Administration Orders
9.3.1............ Introduction
9.3.2............ The three insolvency processes under the Gibraltar PCC Act
9.3.3............ Gibraltar and its relationship to the UK re the EU Insolvency Regulation
9.3.4............ The Gibraltar liquidator process
9.3.5............ The Gibraltar receiver process
9.3.6............ The Gibraltar administrator process
9.4........... THE EU Insurance Insolvency Directive
9.4.1............ Background
9.4.2............ The EU Insurance Insolvency Directive and its Recital: its general aims, purpose and ambit
9.5........... The EU Insolvency Insurance Directive: Articles
9.5.1............ Article 1
9.5.2............ Article 2 - definitions
9.5.3............ Article 4
9.5.4............ Article 9
9.5.5............ Article 10
9.5.6............ Articles 19-26: provisions common to reorganisation measures and winding-up proceedings
9.5.7............ Article 27 - Administrators and liquidators
9.5.8............ Article 30 – “Branches of third country insurance undertakings”
9.6........... The EU Insurance Regulation and the UK
10. UNCITRAL MODEL LAW
10.1......... Background
10.2......... The Title – “Model Law”, etc
10.3......... Article 1 of the Model Law – Scope of Application
10.4......... Article 2 – “Definitions”
10.4.1.......... Proceedings
10.4.2.......... Debtor
10.5......... Article 5 – Foreign Representative
10.6......... Article 6 – Public Policy Exception
10.7......... Articles 11 and 12 – Foreign Representatives and Proceedings
10.8......... Article 13 – Creditor Discrimination
10.9......... Article 16 – Presumptions Concerning Recognition
10.10....... Article 17 – Recognition and Relief Re Foreign Proceedings
10.11....... Articles 21 and 22 – relief granted and creditor protection
10.12....... Articles 25 and 27 – Cooperation and Direct Communication
10.13....... Article 32 – “Hotch pot”
11. THE COMMONWEALTH INSOLVENCY REGIME AND OTHER UK MATTERS
11.1......... Section 426 of the Insolvency Act 1986
11.1.1.......... Section 426: an introduction
11.1.2.......... What Commonwealth Jurisdictions are covered by Section 426 and have PCC legislation?
11.1.3.......... Interaction between Section 426, and the Model Law and the EU Regulation
11.1.4.......... What is the “insolvency law” within section 426
11.1.5.......... Court Cooperation
11.1.6.......... Given a section 426 application by a PCC IP from a Designated Territory, how could a UK court react?
11.1.7.......... Schemes of Arrangement: Section 427 and alternative statutory approach to pari passu
11.1.8.......... Concluding thoughts
11.2......... Part V of the UK Insolvency Act 1986 ("Part V")
11.2.1.......... Introduction
11.2.2.......... Part V grounds to “wind up”
11.3......... Part V and limited liability
11.3.1.......... PCC jurisdictions and their claims to extraterritoriality
11.3.2.......... UK Company Directors Disqualification Act 1986 (“CDDA”) and Similar Provisions
12. DIRECTOR LIABILITY and PCC INSOLVENCIES
12.1......... Director liability – notification and segregation liabilities
12.1.1.......... Introduction
12.1.2.......... Notification liability
12.2......... Segregation liability - background
12.2.1.......... Segregation Duties: Directors and IPs: a Case of Conflict of Interest
12.2.2.......... Non-Recognition Liability
12.2.3.......... What Constitutes a Director?
12.2.4.......... What constitutes a Shadow Director?
12.2.5.......... What constitutes behaviour serious to warrant CDDA Prosecution?
12.2.6.......... Corporate directors
13. PIERCING THE CORPORATE VEIL
13.1......... Introduction
13.2......... Insurance and third parties
13.2.1.......... Sham: generally
13.2.2.......... US Shams: an introduction
13.3......... Cell migration
13.4......... International factors influencing ‘piercing the corporate veil'
13.4.1.......... Groups
13.4.2.......... Alter-ego
13.4.3.......... Involuntary versus voluntary creditors
13.4.4.......... Under-capitalisation
13.5......... Financial centres and/or OFCs
13.6......... PCC conversion
13.7......... Minimising measures
13.8......... Antecedent transactions and detrimental acts
14. PCC CELLS: AN ASSET IN AN INSOLVENCY?
14.1......... The PCC as an Asset Protection Trust (APT) and “Antecedent Transactions” generally: The non-traditional uses of PCCs
14.2......... Comparative PCC insolvency priorities
14.2.1.......... Introduction
14.2.2.......... Different priorities
14.2.3.......... The Jersey Difference
14.2.4.......... The US Difference
14.2.5.......... The Bermudan Difference
14.2.6.......... Preferential Liabilities and PCCs
14.2.7.......... Shareholder Liabilities
14.3......... Expenses in a PCC insolvency
14.3.1.......... IP expenses and priority allocation in a PCC or PCC cellular insolvency
14.3.2.......... The Messenger Insolvency
14.3.3.......... How do PCC regimes address IP costs?
14.3.4.......... Proprietary claims versus IP fees
14.3.5.......... If PCC statues address IP fees, how do they do it?
14.4......... Cellular structures and in rem or secured rights
14.4.1.......... Proprietary Claims – the issue of subordination
14.4.2.......... Conflict of law: substance and procedure
14.4.3.......... In rem v in personam liability
14.5......... A consideration of UK cases and pari passu
15. TAX TREATMENT OF A PCC
15.1......... Tax creditors
15.2......... Local v Foreign; State v Federal tax Treatment of a PCC
15.3......... International Taxation and the PCC
15.4......... Tax issues Regarding a Cell Captive
15.5......... Concluding remarks
16. WHAT ARE THE GROUP ACCOUNTING ISSUES?
16.1......... Group protected cell companies - accounting considerations under International Financial Reporting Standards
16.2......... Group consolidation considerations
16.2.1.......... Group general considerations
16.2.2.......... Group special purpose entities
16.2.3.......... Group summary
17. WHAT ARE THE PCC and CELLULAR ACCOUNTING ISSUES?
17.1......... Article 127 YE - Annual return in respect of cells
17.2......... Article 127YF of the Law is repealed
17.3......... Article 127YG Accounts of cell companies
18. CONCLUSIONS
18.1......... Insolvency conclusions
18.2......... General Conclusion and Summary
Appendix 1: Specimen Articles and Memorandum for an insurance PCC
Appendix 2: Specimen Articles of Contractual Cell Company
Appendix 3: Specimen Memorandum and Articles of Association of a PCC Umbrella Fund
Appendix 4: Specimen Private Information Memorandum of a PCC Umbrella Fund
Appendix 5: The Reinsurance Assignment Agreement
Index
Samples
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Author
Nigel Feetham is a partner at Hassans International Law Firm. His area of practice includes insurance, funds, and structured finance including tax work. He has been a leading figure in the local financial community for a number of years and has played a major part in some of the most significant developments in the Gibraltar finance sector. He has advised the Government on the implementation of specific legislation including the Protected Cell Companies Act and the modernisation of Gibraltar’s funds legislation. Nigel is also a non-executive member of the Gibraltar Financial Services Commission. He graduated with a First Class Honours degree from Manchester Metropolitan University, and was awarded a Masters degree in law with Distinction at Manchester Victoria University. He serves as a non-executive director in a number of Gibraltar insurance company Boards.Grant Jones first practised as a chartered accountant before realising the law was easier. He practises as an attorney with Squire Sanders Dempsey London. But accountancy could not keep him away. He is a partner with the London office of Cooper Parry LLP, a UK medium sized accounatcy practice. His professional practice encompasses insolvency, finance, pensions, arbitration, and of course, PCCs. He is a member of the Governing Council of the Institute of Chartered Accountants in England and Wales, and a Special Professor of Law at Nottingham University.
