On January 9 2014, in Re Ashburton Global Funds PCC, the Royal Court confirmed that a cell of a protected cell company incorporated under the Companies (Jersey) Law 1991:
- has the standing to enter into arrangements with its members;
- can be the subject of an application to seek the approval of the Royal Court for a scheme of arrangement; and
- can bring such an application in its own right.
The decision arose at the first stage of two schemes of arrangement concerning cells of Ashburton Global Funds PCC, known as Dollar International Equity Fund PC and Sterling International Equity Fund PC. Dollar and Sterling respectively sought orders under Article 125(1) of the law, convening meetings of the registered holders of ordinary shares in each cell respectively to consider – and, if thought fit, to approve – a scheme of arrangement under which the respective assets of Dollar and Sterling were each to be transferred to a sub-fund of Ashburton Investments SICAV, a Luxembourg undertakings for collective investment in transferable securities structure. In broad terms, the schemes involved the transfer of Dollar and Sterling's assets to the sub-fund in consideration for the issue of shares in the sub-fund to be held through a nominee structure.
Although Ashburton Global Funds PCC (as the protected cell company) joined in the applications, the court held that by reason of Article 127YD(3) of the law, the cells could themselves enter the arrangement and bring the application in their own right. Article 127YD(3) provides that:
"A cell of a protected cell company shall not be a company but it shall, except as otherwise provided by this Part, be treated as a company registered under this Law for the purpose of the application to it of this Law."
The potential issue faced by a protected cell for the court to consider was that Article 127YP of the law provides that: "A cell of a protected cell company is not a body corporate and has no legal identity separate from that of its cell company." The court was content that the lack of corporate personality or separate identity of the cell did not affect the ability of a cell to be treated as a company for the purposes of the scheme of arrangement provisions contained in the law. It noted that in any event, a cell:
- has its own board, memorandum and articles of association;
- has its own cellular assets and liabilities; and
- can be wound up under the law independently of its cell company.
The court also held that for the purposes of convening the court meetings for each scheme, holders of management shares in each cell (which had no economic interest in the assets of the respective cell and no ability to vote) did not constitute a separate class for the purposes of convening meetings to consider the schemes.
The Royal Court has thus clarified how protected cells are to be considered for the purposes of the statutory provisions in the law – namely, that they will be treated as companies. However, it does not alter the position generally that a protected cell does not have corporate capacity. Accordingly, it cannot contract in its own right and would not have title to sue a third party.
For further information on this topic please contact Nigel Sanders at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email (email@example.com). The Ogier website can be accessed at www.ogier.com.