Protected Cell Companies are not legislated for in Australia but there are a number of other countries that have legislated to permit such companies to exist.
A protected cell company is a limited liability company with the ability to form "cells" that are segregated or quarantined from each other and from the company. The basic idea is to ensure that any one cell cannot be affected by the business of another cell. That is, there is a distinction between the assets of each cell and creditors of one "cell" will not have recourse against the assets of other "cells".
The cells themselves are not recognised legal entities but have sufficient attributes such that they may trade under the umbrella of the protected cell company. The protected cell company must be careful when contracting to ensure that it is clear in respect of which cell a certain transaction is being entered into. If it is not clear then the officer of the protected cell company entering into the transaction on behalf of the company could be personally liable.
Shareholders in protected cell companies will have voting and other rights which are restricted to matters relating to the cell.
Extra-territorial effect of protected cell companies
In respect of the liability of cellular and core assets, the key aspects of the segregation of assets and liabilities are expressed to have extra-territorial application.
In insolvency proceedings in two jurisdictions, the usual approach is to treat the insolvency proceedings in the place of incorporation as the principal insolvency and to treat the additional insolvency proceedings as being ancillary. This would suggest that in any double insolvency affecting a protected cell company, the protected cell structure would be respected, i.e. the place of incorporation will ultimately determine the attribution of assets and liabilities.
However, if significant assets are held in another jurisdiction or liabilities are incurred under foreign laws, a foreign legal opinion should be obtained on whether a foreign court would accept the cellular integrity of the protected cell company in that jurisdiction.
Transfer of assets
It is not possible to transfer a cell (a cell has no legal personality) but it is possible, in certain cases, to transfer cellular assets. Generally the consent of the court is required for the transfer of the cellular assets attributable to any cell of a protected cell company (cell transfer order).
A cell transfer order is not required to invest, and change investment of, cellular assets or otherwise to make payments or transfers from cellular assets in the ordinary course of the protected cell company's business. It should be noted that it is not possible to transfer the core assets of a protected cell company.
What jurisdictions have protected cell companies?
Some of the jurisdictions which have legislated for protected cell companies are:
- Delaware, USA;
- British Virgin Islands;
- Cayman Islands;
- Isle of Man;