A PCC is a single legal entity which may create one or more protected cells for the purpose of segregating and protecting cellular and core assets as provided under the Companies Law.

Legal Segregation of Assets and Liabilities

The key principle of a PCC is that, where any liability arises which is attributable to a particular cell or to the core, only the cellular assets attributable to that cell or the core assets attributable to the core, should be used in satisfaction of the liability. Thus, when considering a liability attributable to a cell, the core assets and the assets attributable to any other cell are “protected assets”.

In the absence of a recourse agreement, creditors of a cell of a PCC only have recourse against the cellular assets attributable to that cell and those cellular assets are absolutely protected from the creditors of another cell. Similarly, unless a recourse agreement stipulates otherwise, the core assets of the core of a PCC are only available to creditors of the core and are absolutely protected from any creditors of any cell who are not creditors of the core. Liabilities of a PCC not otherwise attributable to any of its cells must be discharged from the PCC’s core assets.

Unless excluded in writing, it is an implied term of every transaction to which a PCC is party that no party shall make or attempt to make liable any “protected assets”. The Companies Law sets out recovery mechanisms in favour of the PCC should any such party be successful in taking protected assets in satisfaction of liabilities. The principle is that, subject to the terms of any recourse agreement, the cellular assets attributable to a cell must be used in satisfaction of any liability attributable to that cell. In the same way, the assets attributable to the core are liable in respect of liabilities attributable to the core.

Recourse Agreements

A recourse agreement is a written agreement between a PCC and a creditor which provides that protected assets may be subject to a liability owed to a creditor. The Companies Law provides that a PCC may only enter into a recourse agreement if the directors have followed certain procedures and, subject to the articles of incorporation of the PCC (“the Articles”), if the core members or the members of the relevant cell (as appropriate) have agreed the recourse agreement.

Separation of Cell and Core Assets

The directors of a PCC structure must keep cellular assets separate and separately identifiable from the core assets and must also keep cellular assets attributable to each cell separate and separately identifiable from cellular assets attributable to other cells. Nonetheless, the assets of a PCC may be collectively invested, provided that they remain separately identifiable. The assets of a PCC may also be held by a nominee or underlying company, the capital of which forms cellular assets or core assets (as the case may be).

Informing Third Parties

A PCC must inform any person with whom it transacts that it is a PCC and identify or specify the cell in respect of which that person is transacting or specify that the transaction is in respect of the core (as appropriate). If a PCC fails to provide the transacting party with this information, the directors of the PCC become personally liable to the counterparty to the contract, although, unless they were fraudulent, reckless, negligent or acted in bad faith, they do have a right of indemnity against the core assets of the PCC. Only the Court can relieve the directors from this indemnity on certain grounds set out in the Companies Law and, in doing so, may order that any liability may be met from the cellular assets or core assets of the PCC.

Transfer of Assets Out of a Cell

Cellular assets may not be transferred out of the relevant cell other than in the ordinary course of business. The exception to this is where the Court approves the transfer of assets out of a cell (but not the core) to another person, wherever resident or incorporated. This transfer mechanism is not intended to cover the investment or divestment by the cell of cellular assets or a payment or transfer from cellular assets in the ordinary course of business. Such ordinary course transactions would not require Court approval.

The Court will only approve a transfer of cellular assets if it is satisfied that the creditors of the cell concerned have consented to the transfer or would not be unfairly prejudiced by the transfer.

The Commission has a right to make representations to the Court in respect of the transfer. A transfer can be approved by the Court even though the PCC is being wound up or it or any of its cells is subject to an order for receivership or administration.

Arrangements between Cells

A PCC may, in the ordinary course of its business or the business attributable to any of its cells, make an arrangement where it deals, transfers, disposes or attributes cellular assets or core assets between any of its cells or between the PCC and any of its cells. If necessary, the PCC must adjust its accounting records and those of the affected cells to reflect the new arrangement. The PCC itself, its liquidators or administrators, or the receiver or administrator of any cell, may apply to the Court to make an order to vary, rescind, replace or confirm in respect of the execution, administration or enforcement of an arrangement. 

Winding Up

In a winding up, the cells of a PCC remain separate and the liquidator must apply a cell’s assets only to those creditors entitled to have recourse against them. The general rule that a company’s assets must be applied in satisfaction of the company’s debts and liabilities pari passu is modified to apply to PCCs subject to the provisions of the Companies Law relating to PCCs.

Administration Orders

An administration order may be granted by the Court in respect of a PCC or any one or more of its cells if the Court is satisfied that the PCC (or cell) does not satisfy or is likely to become unable to satisfy the solvency test as prescribed by the Companies Law, and if the Court considers that the making of an administration order may achieve one or more of the following: • the survival of the PCC or cell (as the case may be) and the whole or any part of its undertaking as a going concern; or a more advantageous realisation of the assets of the PCC or the cell (as the case may be) than would be effected on a winding up. 

Administration implements a court sanctioned moratorium against resolutions for the winding up of a PCC and on the commencement or continuance of proceedings against the PCC (without the leave of the Court) during the period between the application and the making of the actual administration order. The moratorium continues once the administration order has been granted but does not affect rights of set-off and secured interests.

An administrator is empowered to do all such things as may be necessary or expedient for the management of the affairs, business and property of the PCC or cell. Upon his appointment, the administrator must take into his custody or control all of the property to which the PCC or cell appears entitled. The administrator must also manage the affairs, business and property of the PCC or cell in accordance with any directions given by the Court. The administrator can remove and appoint directors. Neither an application for administration, nor the subsequent order for administration, results in a statutory cessation of the powers and responsibilities of the directors.

However, any functions conferred on the PCC of its officers constitutionally or by the Companies Law which could be performed in a way which interferes with the administrator’s functions, may not be performed unless the administrator gives his consent.

If an application has been made for the winding up of the PCC, or if the PCC has passed a resolution for voluntary winding up, an administration order in respect of a cell of a PCC may not be made if a liquidator has been appointed to act in respect of the PCC.

An administration order ceases to have effect when a liquidator is appointed. A resolution for the voluntary winding up of a PCC or any cell, which is subject to an administration order, can only be made with the approval of the Court.

Receivership Orders

A receivership order may be made by the Court in respect of one or more cells of a PCC where: • taking account of any assets subject to a recourse agreement, the cellular assets attributable to a particular cell are or are likely to be insufficient to discharge the creditor’s claims in respect of that cell; • the making of an administration order in respect of that cell would not be appropriate; and • the making of an order would achieve the orderly winding up of the business of that cell and the distribution of the cellular assets to those who would have recourse against them.

During the continuance of a receivership order, the powers and responsibilities of the directors cease. There is a Court sanctioned moratorium during the operation of a receivership order against resolutions for the winding up of the PCC and on the commencement or continuance of proceedings against the relevant cell of the PCC (save with the leave of the Court). The moratorium does not affect the rights of set-off and secured creditors. A receivership order may be made in respect of a cell which is subject to an administration order. The PCC, its directors, any creditor of a cell, a cell Holder, an administrator of a cell or the Commission may apply for a receivership order. Notice must be served on the PCC, any administrator of the cell, the Commission and any other person the Court may direct.

Subject to rules on preferential payments, any subordination agreements and any set-off agreements, the PCC’s cellular assets which are the subject of a receivership order must be realised and applied pari passu. Any surplus must be distributed to investors or persons so entitled. If there are no such persons, it must be distributed amongst the holders of the core assets in accordance with their respective rights and interests.

A receivership order in respect of a cell of a PCC may not be made if a liquidator has been appointed to act in respect of the PCC or if the PCC has passed a resolution for voluntary winding up.