Previous Uses
Securitization Vehicles
Finance Vehicles
Protection of Third Parties
Uses
The Protected Cell Companies Ordinance 1997 came into force in Guernsey on February 1 1997. It provided for the establishment of a new type of company, a protected cell company (PCC). The ordinance was amended by the Protected Cell Companies (Amendment) Ordinance 1998.
The significance of the Protected Cell Companies Ordinance 1997 is that it permits a PCC to have separate and distinct 'cells'. The assets and liabilities of a cell are segregated from those of other cells, and those assets are not available to creditors of other cells in an insolvency. A PCC is a legal framework where the recourse of a creditor is limited by law, not simply by documentation.
Prior to the introduction of the Protected Cell Companies (Special Purpose Vehicle) Regulations 2001, the only companies which could be established as, or converted into, PCCs were:
- collective investment schemes authorized under Section 8 of the Protection of Investors (Bailiwick of Guernsey) Law 1987;
- closed-ended investment companies within the meaning of paragraph 2(2) of Schedule 1 to the Protection of Investors (Bailiwick of Guernsey) Law 1987; and
- insurers registered under the Insurance Business (Guernsey and Alderney) Laws 1986 and 1996, or those insurers which are exempt from registration by virtue of the Insurance Law.
Through the Protected Cell Companies (Special Purpose Vehicle) Regulations 2001, which came into force on February 6 2001, the Guernsey Financial Services Commission (GFSC) has now allowed PCCs to be used more widely for securitization vehicles and other financial services vehicles.
Securitization Vehicles
These are defined in the regulations as:
"any company established principally for the purpose of issuing bonds, notes or loans, or other debt securities or instruments, secured or unsecured, in respect of which the repayment of capital and interest is to be funded from the proceeds of the company's investments including, without limitation, debt or equity securities, royalties, income flows, derivatives, interest rates, currency or other swaps, or any other credit enhancement arrangements or financial assets."
Finance Vehicles
These are defined in the regulations as:
"any company established principally for the purpose of carrying on finance business (within the meaning of the Financial Services Commission (Bailiwick of Guernsey) Law 1987, as amended from time to time) other than a company supervised under -
(i) the Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended;
(ii) the Insurance Business (Guernsey) Law 1986, as amended;
(iii) the Banking Supervision (Bailiwick of Guernsey) Law 1994, as amended;
(iv) the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law 2001."
In this context 'finance business' includes carrying out, and providing services in relation to, the business of banking, insurance, investment and asset management or administration.
Protection of Third Parties
Protected cell companies may only be incorporated with the written consent of the GFSC. A number of sections of the Protected Cell Companies Ordinance 1997 are designed to ensure that third parties dealing with a PCC are on notice of that fact.
Name
The name of a PCC must include the expression 'Protected Cell', 'PCC' or any other cognate expression approved in writing by the GFSC.
Memorandum
The memorandum of association of a PCC must state that it is a protected cell company.
Cell name
Each cell of a PCC must have its own distinct name or designation.
Notification
A PCC must (i) inform any person with whom it transacts that it is a PCC, and (ii) for the purpose of the relevant transaction, identify or specify the cell in respect of which that person is transacting, unless that transaction is not a transaction in respect of a particular cell.
In practice this will involve contractual documentation making it clear that the PCC is transacting in respect of a particular cell.
Additional requirements
The GFSC has additionally stated that there will be further controls over the use of PCCs as special purpose vehicles and finance vehicles, which will include the need for some form of administrator, services agent or general representative, being an entity regulated by the GFSC.
In practice the use of the PCC in this new area will enable multi-issuance vehicles to be established without the need for the incorporation of a new vehicle on each occasion.
It remains to be seen what opportunities exist in the area of finance vehicle special purpose vehicles.
For further information on this topic please contact Ian Kirk at Collas Day by telephone (+44 1481 723191) or by fax (+44 1481 711880) or by e-mail ([email protected]).
The materials contained on this web site are for general information purposes only and are subject to the disclaimer.