An Update to the Protected Cell Company Regime

Background 

Under the Companies Act (Cell Companies Carrying on Business of Insurance) Regulations, a company may be constituted as a Protected Cell Company for the purpose of carrying on the business of insurance. 

What is a Protected Cell Company? 

A Protected Cell Company (PCC) is a corporate vehicle used to segregate assets of a company into two or more cells. The assets of the PCC are classified as either cellular assets or non-cellular assets. Cellular assets of the PCC are those which are attributable to a particular cell. Non-cellular assets comprise of those assets not attributable to any cells. 

The Benefit of a Protected Cell Company

Each cell in a PCC will have assets which are attributable to it (the ‘cellular assets’) as well as liabilities which are due by it (the ‘cellular liabilities’). 

The cellular assets of a particular cell will only be available to the creditors of the PCC who are creditors in respect of that cell. This means that they are absolutely protected from creditors of the PCC who are not creditors in respect of that cell. In fact, the Regulations provided that “any cellular assets not attributable to the relevant cell shall not be used to satisfy the liability”.

Amendments to the Legislative Framework Governing Protection Cell Companies

On the 30^th of August 2024, the Companies Act (Cell Companies Carrying on Business of Insurance)(Amendment) Regulations 2024 were published by the Maltese Government, introducing a number of changes to the PCC regime. 

An End to the Limitation of Liability of Cells Exclusively Carrying On Business of Affiliated Insurance or Business of Reinsurance

Prior to the 2024 amendments, a PCC could, by specific written agreement, provide that only the cellular assets of a cell may be utilised to satisfy the cellular liability of the cell, when such cell:

1. Exclusively carried on the (a) the business of affiliated insurance or (b) the business of reinsurance; and 
2. It was specifically permitted to do so by its M&AA.

Furthermore, where the business of the cell relates to compulsory insurance, the PCC was obliged to have sufficient guarantees in place for the protection of insured persons, policyholders, creditors and other interested parties.

Following the amendments, this possibility is no longer available to PCCs. However, the Regulations allow a 10-year grace period for those PCCs already operating on the basis of such agreements.

In fact, PCCs which have entered into such specific written agreements prior to the introduction of the Regulations may continue to pursue the business on the basis of the said specific written agreements, until 30^th of August 2034.

A New Regime for the Limitation of Liability of Cells Carrying on the Business of Affiliated Insurance 

A PCC can now, by specific written agreement to that effect, provide that only the cellular assets of a cell may be utilised to satisfy the cellular liability of the cell, when such cell:

1. Exclusively carries on the business of affiliated insurance; 
2. Holds eligible basic own funds to cover the Solvency Capital Requirement;
3. Is specifically permitted to do so by its M&AA. 

However, where the business relates to compulsory insurance, the PCC shall have sufficient guarantees in place for the protection of insured persons, policyholders, creditors or other interested parties.

An Amendment to the Framework Regulating Transfers of PCCs’ Cellular Assets

Prior to the amendments, the transfer of cellular assets was less regulated and more flexible.

Following the amendment, it is now only possible for the cellular assets attributable to any cell of a PCC to be transferred to:

1. Another PCC authorised under the Insurance Business Act;
2. An Authorised Insurance Undertaking, European Insurance Undertaking or European Reinsurance Undertaking;
3. A Third-Country Insurance Undertaking;
4. Another cell of the same PCC.

Furthermore, such a transfer may only take place when:

1. The transferring cell does not have specific written agreements in place for the limitation of liability in relation to the business of affiliated insurance or the business of reinsurance under the old regime; and
2. The shareholders of the transferring cell and the receiving cell are the same persons. 

It is also possible for the cellular assets attributable to any cell of a PCC enrolled in the Managers List to be transferred to:

1. Another PCC enrolled as an Insurance Manager;
2. Another Insurance Manager (other than a PCC).

Similarly, cellular assets attributable to any cell of a PCC enrolled in the Brokers List can now be transferred to:

1. Another PCC enrolled as an Insurance Broker;
2. Another Insurance Broker (other than a PCC).

Whenever the transferee is a PCC (whether authorised under the Insurance Business Act, or enrolled as an Insurance Manager or Insurance Broker), the PCC intending to transfer the cellular assets of one of its cells shall deliver a notice to the Registrar. The notice shall be delivered in the form set out in Schedule I to the Regulations. The Registrar shall then publish such notice on its website. 

All such transfers are subject to the approval of the MFSA, which can subject any such transfer to conditions as it deems fit. Where the MFSA approves the transfer, the PCC transferring the cellular assets shall deliver a copy of the approval to the Registrar.

Furthermore, the Regulations now require the Registrar to (i) strike off the name of the cell from under the name of the PCC, (ii) register the name of the cell under the transferee company and (iii) inform the MFSA of such changes.

An Amendment to the Regime Regulating Winding-Up of Cells

Prior to the amendments, the Regulations only required the MFSA’s consent for the liquidation of a cell. The scope of this provision has been widened, requiring MFSA consent for the ceasing of any cell, the run-off or services of any cell or the winding-up of any-cell.

Furthermore, a PCC is now bound to deliver a notice to the Registrar whenever any of its cells intends to cease to carry on business, informing the Registrar that the cell shall be wound up and confirming whether the solvency or insolvency of such cell. The notice shall be delivered in the form set out in Schedule II to the Regulations.