Insurance Cells
What is a Protected Cell Company (PCC)?
A protected cell operates like a separate limited liability company but is actually a segregated part of a single company.
When the assets and liabilities of a particular company or group have been allocated to a cell, only persons who have entered into transactions with that cell, or have become creditors of the cell will have recourse against its assets. It is possible for a cell set up in a PCC to issue shares.
Similarly it is possible for dividends to be paid on shares of a cell even though the core company has not made a profit. The proceeds of shares would become assets of the relevant cell as would the payment of capital, share premiums, contributed surplus, retained earnings and premiums paid into
the cell.
These assets are segregated from other cells and are not available to the creditors of the core company or any other cells. This is achieved by the following legal mechanisms:
The directors of a PCC are under an obligation to keep the assets and liabilities of one cell identifiable and entirely separate from those of another cell;
- Every third party that contracts or deals with a particular cell is deemed to accept that in recovering its debts from a particular cell, it will not have recourse against other cells within the PCC. The corollary of this is that every PCC is legally obligated to put third parties on notice that they are contracting with a PCC. This is done by:
- including the expression “Protected Cell Company” or “PCC” at the end of the company name; and
- every director of a PCC informing third parties that they are contracting or dealing with a PCC; the director being personally liable for any losses resulting from a failure to do so.
- A PCC can create and issue shares in any of its cells. This enables ownership of a cell to be divided among a number of legal persons, thereby facilitating the equitable distribution of cellular profits.
The possibilities of protected cell companies
There are two primary ways by which a company can take advantage of a protected cell company.
- First, it could incorporate its own protected cell company by following a process similar to that for standard captive insurance companies.
- Alternatively, it could rent a cell from an existing insurance company and thereby avoid the associated set up and compliance costs.
|
