Overview

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.

Full Product Details

Author:   Nigel Feetham ,  Grant Jones
Publisher:   Spiramus Press
Imprint:   Spiramus Press
Edition:   2nd Revised edition
Dimensions:   Width: 15.60cm , Height: 3.00cm , Length: 23.40cm
Weight:   0.975kg
ISBN:  

9781904905929

ISBN 10:   1904905927
Pages:   574
Publication Date:   25 March 2010
Audience:   Professional and scholarly ,  Professional & Vocational
Format:   Paperback
Publisher's Status:   Active
Availability:   In Print  
This item will be ordered in for you from one of our suppliers. Upon receipt, we will promptly dispatch it out to you. For in store availability, please contact us.

Table of Contents

"Acknowledgments v About the Authors vi Preface to the Second Edition. vii Foreword to the Second Edition. xi Foreword to the First Edition. xv Contents.. xix Tables of Authorities xxviii Introduction.. 1 1. RING FENCING AND THE EVOLUTION OF THE CELL COMPANY 3 1.1.... The Cell Captive. 6 1.2.... The Cell Captive structure: how does it work?. 7 1.3.... Claims Limitation. 9 1.4.... Unfair Contract Terms Directive. 10 1.5.... Why the need for the protected cell?. 13 1.6.... Repackaging. 17 1.6.1..... What is a repackaging?. 18 1.6.2..... Asset Swap.. 18 1.6.3..... The Special Purpose Vehicle. 19 1.6.4..... Credit-linked Notes. 20 1.7.... Funds. 23 2. THE ADVENT OF THE PCC. 29 2.1.... The Challenge. 31 2.2.... Substantive versus procedural 33 2.3.... Location of assets, custodian and Collateral Directive. 37 2.4.... Beware of claims that may not be limited! Especially involuntary creditors 39 2.5.... Provisions of Gibraltar (and Guernsey) PCC legislation. 40 2.5.1..... Requirements on incorporation/conversion.. 40 2.5.2..... Duty to inform third parties. 41 2.5.3..... Separation of assets. 41 2.5.4..... Share capital 43 2.5.5..... Administration.. 43 2.5.6..... Cells are not legal entities. 45 2.6.... Entrenchment 45 2.7.... Market acceptance and respecting the intention of the parties. 46 3. SERIES LLC: AN ANALOGOUS BUSINESS FORM TO THE PCC. 49 3.1.... Delaware. 49 3.2.... US Case-law.. 57 3.3.... SEC Prouncement 61 3.4.... Statutory segregation under Italian law.. 63 3.4.1..... “Allocation of dedicated assets to specified business activities” 66 3.4.2..... “Financing allocated to a specific business activity”. 67 4. THE INSURANCE COMPANY PCC: WITH A FOCUS ON THE EU.. 69 4.1.... What is a captive?. 70 4.2.... Application of the PCC concept 71 4.3.... Lloyd’s of London and the PCC. 74 4.4.... Fronting versus Risk Bearing Cell 77 4.5.... Future developments. 80 4.6.... Solvency II 82 4.7.... Summary. 84 4.8.... Documentation. 84 5. MANAGING A PCC CAPTIVE. 85 5.1.... Regulatory. 89 5.2.... Branch or Services?. 91 5.3.... Will the intermediary/service provider be subject to the direction and control of the Insurer? 92 5.4.... Is the intermediary able to commit the Insurer?. 92 5.5.... Has the intermediary received a permanent brief from the Insurer? 93 5.6.... Freedom of Services. 93 5.7.... Governing law and jurisdiction clauses. 95 5.8.... Should the PCC structure be offensive to a regulator?. 100 5.9.... Who should perform the compliance function?. 101 5.10.. Cell Management Contract 101 5.11.. Directors’ Duties. 102 5.12.. Checklist of Dos and Don’ts. 103 6. GROWING MARKET FOR THE PCC. 105 6.1.... The PCC and the Investment Fund. 105 6.2.... The PCC in the world of Structured Finance. 113 6.3.... Portfolio transfers and the potential use of the PCC. 115 6.4.... Is the use of the PCC a possible solution for the UK pensions problem? 116 6.5.... Shariah law and the PCC. 117 6.6.... The PCC Life Company. 118 6.7.... The Credit Crunch and Madoff 121 6.8.... Could a PCC redomicile between jurisdictions or amalgamate? 123 6.8.1..... Why should a PCC be objectionable to a foreign jurisdiction? 128 7. BASIC INSOLVENCY PRINCIPLES RELEVANT TO PCCs. 133 7.1.... Pari Passu. 133 7.1.1..... Pari Passu and PCCs internationally. 133 7.2.... Hotch pot 134 7.3.... ‘Pro-Creditor’ v ‘Pro-Debtor’ 134 7.4.... The Insolvency Practitioner 136 7.5.... Internationalism v Nationalism.. 136 7.6.... Seat Theory v Centre of Main Interest (COMI) 137 7.6.1..... Rescue Culture. 138 7.6.2..... Transnational and International Insolvency Regimes. 139 7.6.3..... Preferential or priority creditors and involuntary creditors. 140 7.6.4..... Secured or in rem creditors. 142 7.6.5..... Antecedent transactions or detrimental acts. 143 8. EU REGIMES: AN INTRODUCTION.. 145 8.1.... Background. 145 8.2.... Relevant EU Directives and Regulations; an introduction. 146 9. THE EU REGULATION: AN OVERVIEW.. 149 9.1.... The EU Regulation: a detailed analysis of its PCC relevant provisions 149 9.1.1..... Introduction.. 149 9.1.2..... Article 1. Ambit 149 9.1.3..... The initial question.. 149 9.1.4..... Article 3 - international jurisdiction - the centre of main interest or COMI. 153 9.1.5..... Article 4 - law applicable - Renvoi 155 9.1.6..... Article 5 - third parties rights in rem, i.e. secured rights of third parties. 156 9.1.7..... Article 6 - set-off 159 9.1.8..... Article 11 - effects on rights subject to registration.. 160 9.1.9..... Article 13 - detrimental acts (or “antecedent transactions”) 160 9.1.10... Article 20 - return and imputation - “the hotch pot rule”. 161 9.1.11... Article 26 - public policy. 162 9.1.12... Article 32 - exercise of creditor rights. 163 9.1.13... National exceptions within the EU.. 164 9.2.... Part 1 of the Gibraltar PCC Act of the EU.. 168 9.2.1..... Section 3 - PCC “Formation and Attributes”. 168 9.2.2..... Section 6 – “the position of creditors”. 168 9.2.3..... Section 8 – “Cell shares and share capital”. 171 9.2.4..... Section 13 – “Liability of cellular assets”. 171 9.2.5..... Section 15 – “Company to inform persons they are dealing with... [PCC]” 171 9.3.... Parts II (sections 19-23) and III (sections 24-28) - Receivership and Administration Orders 172 9.3.1..... Introduction.. 172 9.3.2..... The three insolvency processes under the Gibraltar PCC Act 172 9.3.3..... Gibraltar and its relationship to the UK re the EU Insolvency Regulation 173 9.3.4..... The Gibraltar liquidator process. 174 9.3.5..... The Gibraltar receiver process. 176 9.3.6..... The Gibraltar administrator process. 177 9.4.... THE EU Insurance Insolvency Directive. 178 9.4.1..... Background.. 178 9.4.2..... The EU Insurance Insolvency Directive and its Recital: its general aims, purpose and ambit 180 9.5.... The EU Insolvency Insurance Directive: Articles. 182 9.5.1..... Article 1. 182 9.5.2..... Article 2 - definitions. 183 9.5.3..... Article 4. 184 9.5.4..... Article 9. 184 9.5.5..... Article 10. 184 9.5.6..... Articles 19-26: provisions common to reorganisation measures and winding-up proceedings 185 9.5.7..... Article 27 - Administrators and liquidators. 185 9.5.8..... Article 30 – “Branches of third country insurance undertakings” 186 9.6.... The EU Insurance Regulation and the UK.. 186 10. UNCITRAL MODEL LAW.. 191 10.1.. Background. 191 10.2.. The Title – “Model Law”, etc. 193 10.3.. Article 1 of the Model Law – Scope of Application. 193 10.4.. Article 2 – “Definitions”. 194 10.4.1... Proceedings. 194 10.4.2... Debtor. 196 10.5.. Article 5 – Foreign Representative. 198 10.6.. Article 6 – Public Policy Exception. 198 10.7.. Articles 11 and 12 – Foreign Representatives and Proceedings 198 10.8.. Article 13 – Creditor Discrimination. 198 10.9.. Article 16 – Presumptions Concerning Recognition. 199 10.10 Article 17 – Recognition and Relief Re Foreign Proceedings. 209 10.11 Articles 21 and 22 – relief granted and creditor protection. 210 10.12 Articles 25 and 27 – Cooperation and Direct Communication. 215 10.13 Article 32 – “Hotch pot”. 215 11. THE COMMONWEALTH INSOLVENCY REGIME AND OTHER UK MATTERS 217 11.1.. Section 426 of the Insolvency Act 1986. 217 11.1.1... Section 426: an introduction.. 217 11.1.2... What Commonwealth Jurisdictions are covered by Section 426 and have PCC legislation? 217 11.1.3... Interaction between Section 426, and the Model Law and the EU Regulation 219 11.1.4... What is the “insolvency law” within section 426. 220 11.1.5... Court Cooperation.. 220 11.1.6... Given a section 426 application by a PCC IP from a Designated Territory, how could a UK court react? 220 11.1.7... Schemes of Arrangement: Section 427 and alternative statutory approach to pari passu 224 11.1.8... Concluding thoughts. 226 11.2.. Part V of the UK Insolvency Act 1986 (""""Part V"""") 227 11.2.1... Introduction.. 227 11.2.2... Part V grounds to “wind up”. 228 11.3.. Part V and limited liability. 229 11.3.1... PCC jurisdictions and their claims to extraterritoriality. 229 11.3.2... UK Company Directors Disqualification Act 1986 (“CDDA”) and Similar Provisions 231 12. DIRECTOR LIABILITY and PCC INSOLVENCIES. 233 12.1.. Director liability – notification and segregation liabilities. 233 12.1.1... Introduction.. 233 12.1.2... Notification liability. 233 12.2.. Segregation liability - background. 237 12.2.1... Segregation Duties: Directors and IPs: a Case of Conflict of Interest 240 12.2.2... Non-Recognition Liability. 242 12.2.3... What Constitutes a Director?. 244 12.2.4... What constitutes a Shadow Director?. 247 12.2.5... What constitutes behaviour serious to warrant CDDA Prosecution? 248 12.2.6... Corporate directors. 249 13. PIERCING THE CORPORATE VEIL. 251 13.1.. Introduction. 251 13.2.. Insurance and third parties. 253 13.2.1... Sham: generally. 255 13.2.2... US Shams: an introduction.. 255 13.3.. Cell migration. 256 13.4.. International factors influencing ‘piercing the corporate veil’. 260 13.4.1... Groups. 261 13.4.2... Alter-ego. 262 13.4.3... Involuntary versus voluntary creditors. 262 13.4.4... Under-capitalisation.. 263 13.5.. Financial centres and/or OFCs. 263 13.6.. PCC conversion. 264 13.7.. Minimising measures. 264 13.8.. Antecedent transactions and detrimental acts. 265 14. PCC CELLS: AN ASSET IN AN INSOLVENCY?. 269 14.1.. The PCC as an Asset Protection Trust (APT) and “Antecedent Transactions” generally: The non-traditional uses of PCCs. 269 14.2.. Comparative PCC insolvency priorities. 272 14.2.1... Introduction.. 272 14.2.2... Different priorities. 273 14.2.3... The Jersey Difference. 277 14.2.4... The US Difference. 279 14.2.5... The Bermudan Difference. 280 14.2.6... Preferential Liabilities and PCCs. 280 14.2.7... Shareholder Liabilities. 281 14.3.. Expenses in a PCC insolvency. 281 14.3.1... IP expenses and priority allocation in a PCC or PCC cellular insolvency 281 14.3.2... The Messenger Insolvency. 282 14.3.3... How do PCC regimes address IP costs?. 283 14.3.4... Proprietary claims versus IP fees. 284 14.3.5... If PCC statues address IP fees, how do they do it?. 284 14.4.. Cellular structures and in rem or secured rights. 286 14.4.1... Proprietary Claims – the issue of subordination.. 286 14.4.2... Conflict of law: substance and procedure. 286 14.4.3... In rem v in personam liability. 288 14.5.. A consideration of UK cases and pari passu. 289 15. TAX TREATMENT OF A PCC. 293 15.1.. Tax creditors. 293 15.2.. Local v Foreign; State v Federal tax Treatment of a PCC. 293 15.3.. International Taxation and the PCC. 297 15.4.. Tax issues Regarding a Cell Captive. 307 15.5.. Concluding remarks. 308 16. WHAT ARE THE GROUP ACCOUNTING ISSUES?. 309 16.1.. Group protected cell companies - accounting considerations under International Financial Reporting Standards 309 16.2.. Group consolidation considerations. 310 16.2.1... Group general considerations. 310 16.2.2... Group special purpose entities. 311 16.2.3... Group summary. 313 17. WHAT ARE THE PCC and CELLULAR ACCOUNTING ISSUES?. 315 17.1.. Article 127 YE - Annual return in respect of cells. 315 17.2.. Article 127YF of the Law is repealed. 315 17.3.. Article 127YG Accounts of cell companies. 315 18. CONCLUSIONS. 317 18.1.. Insolvency conclusions. 317 18.2.. General Conclusion and Summary. 319 Appendix 1: Specimen Articles and Memorandum for an insurance PCC 321 Appendix 2: Specimen Articles of Contractual Cell Company 367 Appendix 3: Specimen Memorandum and Articles of Association of a PCC Umbrella Fund 405 Appendix 4: Specimen Private Information Memorandum of a PCC Umbrella Fund 461 Appendix 5: The Reinsurance Assignment Agreement. 523"

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Author Information

Nigel Feetham is a partner at Hassans International Law Firm. His area of practice includes insurance, funds and structured finance. He has played a major part in some of the most significant developments in the Gibraltar finance sector. Grant Jones is an insolvency accountant partner with Cooper Parry LLP. He also practises as an attorney, in-house with a UK hedge fund and as a consultant to the UK firm of Taylor Vinters and the Gibraltar firm of Ellul & Co, as well as having his own arbitration practice. He is a member of the Governing Council of the ICAEW, President of the London Society of Chartered Accountants and a Special Professor of Law at Nottingham University.

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