New companies legislation that came into force earlier this year has not only put Jersey on a par with offshore and other jurisdictions that allow the establishment of protected cell companies but introduced a new type of vehicle, known as the incorporated cell company, which aims to resolve any remaining doubts about the legal robustness of cell company structures.
According to members of the Jersey funds industry, PCCs and ICCs have accounted for a significant number of the new hedge fund structures set up in Jersey since the Companies (Amendment No 8) (Jersey) Law 2005, amending the island's 1991 companies legislation, came into effect on February 1. 'A number of the funds we're working on at the moment have either PCC or ICC characteristics,' says Richard Boléat of Capita Fiduciary Group.
'PCCs and ICCs enable managers to have a series of different strategies on a single platform. For instance, we're working to create a single structure for one manager who wants a conventional long/short equity fund, for liquid ideas, as well as a private equity fund, for illiquid ones. The benefits include the convenience of doing everything on a single platform, as well as helping branding and marketing.'
Says Bill Gibbon of law firm Voisins: 'We are using almost exclusively PCCs and ICCs for hedge funds this year,' he says. 'They seem ideally suited to the hedge fund industry, particularly funds of funds, but also any funds that are using derivatives and trading on the margin. Investors in safer alternatives know they will not be at risk from losses in other fund portfolios. They also fit well with the traditional Jersey umbrella fund structure.'
Cell companies are corporate vehicles which, under the law of Jersey and other jurisdictions that recognise them, can segregate their assets and liabilities between different cells for different purposes. The structure is designed to prevent creditors of a particular cell that becomes insolvent having recourse against the assets of other cells as well as the structure as a whole. Within Jersey ICCs and PCCs, cells can invest in each other, which is not possible with cell companies from any other jurisdiction.
Says Eve Kosofsky of Carey Olsen: 'A PCC is a single legal entity, with the cell company as the administrative wrapper and each cell in effect an accounting treatment within the company. As a legal entity, the cell company has to contract on behalf of the cell. Although the Jersey PCC is a step forward from other protected cell structures in that the legislation stipulates that creditors cannot take action against other cells or against the non-cellular assets of the company, there's a risk that another jurisdiction might not agree. By contrast, within an ICC each cell is a separate legal entity, and a creditor of one company cannot take action against another.'
Gibbon acknowledges that a question mark hanging over PCCs, which were first introduced in Guernsey in the late 1990s, is that their segregation of assets has not been tested in the courts of all relevant jurisdictions. By contrast, the fact that each cell of an ICC is an individual incorporated entity ensures recognition in the US and other onshore jurisdictions where there might be any question about legal acceptance of a PCC. Says Ogiers partner Richard Thomas: 'We use PCCs extensively for Cayman fund structures, but the ICC structure gives extra ring-fencing security around the portfolio of each of the fund classes to ensure there is no cross-default"