Gibraltar: Gibraltar Introduces Protected Cell Companies Legislation

The Gibraltar parliament, the House of Assembly, passed a bill for a Protected Cell Companies Ordinance on 3 July 2001.

The new legislation, which is expected to boost sectors such as captive insurance and funds, in essence provides for a single company with individual parts, known as cells, which are kept separate from each other. Each cell is only liable for its own debts and not for the debts of any other cell within the company.

Part I – Formation And Attributes

Part I of the Ordinance describes the formation and attributes of a protected cell company. A company may be either incorporated as a PCC, or converted, if so authorised by its articles, into a PCC. The new law stipulates that, for the avoidance of doubt, "a protected cell company is a single legal person," and that "the creation by a PCC of a cell does not create, in respect of that cell, a legal person separate from the company". The provisions of the Companies Ordinance apply in relation to a protected cell company (subject to the provisions of the PCC Ordinance, and unless the context requires otherwise).

Particularly noteworthy is Section 5 of Part I, which describes the duty to keep the assets of each cell separately identifiable. "It shall be the duty of the directors of a protected cell company – (a) to keep cellular assets separate and separately identifiable from non-cellular assets; and (b) to keep cellular assets attributable to each cell separate and separately identifiable from cellular assets attributable to other cells."

Directors may "cause or permit" cellular and non-cellular assets to be held by or through a nominee, or by a company whose shares and capital interests may be cellular assets, non-cellular assets, or a combination of both. Such assets may be collectively invested, or collectively managed by an investment manager, provided that the assets in question remain separately identifiable.

Sections 6 and 7 make it clear that the rights of creditors are limited to the assets of the cell of which they are creditors.

Cell Shares, Cellular Capital And Cellular Dividends

Section 8 provides for a PCC to create and issue shares ("cell shares") in respect of any of its cells. The proceeds of the issue ("cell share capital") are comprised in the cellular assets attributable to the cell in respect of which the cell shares are issued. A protected cell company may pay a cellular dividend.

Section 9 provides that except in the case of a PCC which is authorised by the Financial Services Commissioner as a collective investment scheme, and which is redeeming units or shares in accordance with its scheme particulars, no reduction of cell share capital may be made without an order of the Court.

Section 10 provides that a protected cell company must state that it is one i.e. the name of the PCC must include "Protected Cell", "PCC", or any cognate expression approved in writing by the Registrar. The memorandum of a PCC shall state that it is such, and each cell shall have its own distinct name or designation.

Section 11 states that a company which is a Gibraltar insurer as defined in Section 2 of the Insurance Companies Ordinance, or a collective investment scheme authorised under the Financial Services Ordinance 1989 must obtain the consent of the Financial Services Commissioner before becoming a PCC.

In the case of securitisation companies not requiring a licence under the Financial Services Ordinances 1989 or 1998 established principally for the purposes of issuing bonds, notes 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 company’s investments, consent must be sought from the Finance Centre Director.

Sections 13 to 18 deal with the liability of cellular and non-cellular assets of the company. "The cellular assets attributable to a particular cell shall be primarily used to satisfy a liability, and the non-cellular assets shall be secondarily used, provided that the cellular assets have been exhausted. However, any liability not attributable to a particular cell of a PCC shall be the liability solely of the company’s non-cellular assets."

Parts II, III & IV Receivership Orders, Administration Orders, And General Provisions

Parts II and III deal with the effects of receivership and administration orders on each individual cell and on the company as a whole. Part IV covers offences under the Ordinance.