Protected Cell Companies (PCC), Malta.
The notion of cell companies became attractive in Malta back in 2004 and has ever since gained preference through the establishment of the Protected Cell Companies legal regime. In fact, Malta is the only European Member State which offers the Protected Cell Company (PCC) structure, which structure has acquired popularity from anyone looking to set up a simple ‘cell’ to those looking to set up a ‘cell company’.
According to the Companies Act (Cell Companies Carrying on Business of Insurance) Regulations, Subsidiary Legislation 386.10,1 a company is either set up as a cell company or converted into one and creates within itself a cell or multiple cells meant to segregate and protect the assets limited to each cell. The cell company isn’t bound at law, by any number of cells it should create, and each cell contains its own class of shares and has an independent identity. Therefore, a PCC is made up of cells, with assets, segregated from the core itself with each cell limited to its own liabilities. The core and its cells are regarded as one legal entity, and once fully established, a PCC (the structure containing the core and the surrounding cells) can also form a cell in itself for third parties. For tax purposes, each cell is treated as a separate entity.
The core of the structure comprises the core assets (also known as the non-cellular assets), which include the company’s core share capital, investments, and liabilities to mention a few. The core needs to be solvent at all times and sits as the Company’s backbone throughout all of the business transactions. Notwithstanding the fact that creditors do not have any rights over the assets of the cells due to the segregation concept, they do however have a right of recourse to the assets of the core whenever this is permitted, and where the cellular assets of a cell are exhausted. In such a case, where recourse is allowed, the non-cellular asset may be transferred to a particular cell to help it meet its liabilities. Such recourse should be clearly stated in the cell agreement. A non-recourse agreement on the other hand, protects the core from the creditors of the cells as well. The law also provides that where the cell carries on business of affiliated insurance or reinsurance, recourse to the assets of the core is not permitted, even when this is specifically permitted by the memorandum and articles of association of the PCC. Non-affiliated direct insurance businesses also permit non-recourse agreements. A non-recourse agreement means that the cell must be self-capitalised, and that the solvency ratio of the cell has to be at least 100% at all times.
But what does insurance have to do with Protected Cell Companies? PCC structures are generally used by run-off companies wanting to ring-fence the portfolios being managed and/or by companies who want to use or “rent” a cell to passport their way into another European country without having to set up a separate company from scratch. Furthermore, Subsidiary Legislation 386.10 enables insurers to carry out their insurance business of reinsurance, insurance broking and insurance manager through the PCC structure as an alternative to the traditional set up of insurers, captives, or reinsurers. The insurance business is transacted via a licence held by the PCC. The insurance industry vis-à-vis the PCC, is governed by Solvency II being the applicable regime for insurance and reinsurance undertakings in the EU with the aim to ensure adequate protection of policyholders and beneficiaries.
At set up stage, the PCC, always a limited liability company, must include the term ‘Protected Cell Company’ or its abbreviation ‘PCC’ alongside the name of the Company. This term or abbreviation must form part of the name and be displayed accordingly on business letters, forms etc. Each cell must also have its own name and a Board of Directors is appointed responsible for transactions and decisions to be taken both within the Core and each of the cells. Prior to a newly incorporated cell, the Board of Directors shall approve the name of the cell being established, shall approve the terms
of the memorandum and articles of association which are to be entered into by the incorporated cell company, authorises the subscription of share or shares in the incorporated cell, and shall take any other important decision which will highly-affect the PCC. The Board of Directors is also responsible for the statutory and regulatory compliance and corporate governance requirements. The minimum own funds of the PCC, also known as the minimum share capital, does not apply to a single cell but to the whole PCC. The own funds should consist of the initial paid up share capital which should not be less than 50% of the authorised capital.
All in all, the PCC structure is ideal for intensive protection of the assets and for captive insurance structures. It limits creditor exposure depending on the regulations and agreements established at set-up stage and it is very cost effective compared to creating various ground companies. Another distinctive benefit is the non-complicated manner of setting up the company notwithstanding the sophisticated manner of perceiving structure companies in general. This very much goes hand in hand with Malta’s central European position as well as our position vis-à-vis carrying out insurance business, management and brokerage.
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