Protected Cell Companies: Untangling The Cellular Knot

Guernsey was the first jurisdiction to introduce Protected Cell Companies. It did so in 1997 and other 'offshore' jurisdictions followed soon after, including Cayman, Bermuda, Gibraltar and Malta. In more recent years a segregated company regime has been implemented in many states of the United States, in the United Kingdom, Dublin and Luxembourg. Segregated business transactions therefore now take place across many jurisdictions around the world.

Protected Cell Company legislation was enacted primarily to encourage growth of the captive insurance industry, by bringing captive promoters together under a single corporate entity but enabling the segregation of assets between them for satisfying third party claims and limiting their liability accordingly. The clear statutory intention is therefore that the assets attributable to a particular 'cell' (a legal fiction) are not available to meet the claims of creditors of other cells. The limitation serves a similar purpose to the maritime laws that have existed for well over one hundred years in many nations around the world that limited the liability of ship-owners (both in contract and in tort) and also to the corporate fiction that limits the liability of shareholders in a not dissimilar way.

The question "would a foreign court respect PCC legislation" spurred the writing of the book "Protected Cell Companies: a Guide to their Implementation and Use" (Spiramus Press, 2010, 2nd Edition, Nigel Feetham and Grant Jones). This short article will examine that question, albeit it can hardly do justice to the detailed analysis presented in the book itself.

There are possibly three ways in which a PCC could be called into question in foreign court proceedings. First, if local legislation required local courts to ignore PCC legislation on the issue of liability. Second, if PCC legislation was deemed contrary to local public policy. Third, if PCC legislation was classified as procedural, rather than substantive. Let us take each in turn for the sake of argument.

The first is the easiest to dismiss. I am not aware of any statute anywhere in the world that purports to declare that a local court should not give effect to foreign PCC legislation. This is hardly surprising since such outright rejection of a foreign law would hardly sit well with the principle of comity of nations.

The second can also be given short shrift. Far from offending any notion of public policy (or principle of justice), PCC...

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