In April 2006 Guernsey will introduce a new type of cell company structure known as an Incorporated Cell Company or ICC. Guernsey is no stranger to the creation and structuring of cell companies for investment funds, insurance and SPV applications, having pioneered the Protected Cell Company (PCC) concept in 1997, now copied in 39 other jurisdictions.

What is an ICC and How Does it Differ From a PCC ?

An ICC:

• Has cells like a PCC, but which are separately incorporated, registered, identifiable and are separate legal entities in their own right
• Each cell and the cell company itself has the same directors and same registered offices
• The Incorporated cell Company has responsibility for maintaining registers of shareholders of each incorporated cell
• Each cell may have a different memorandum and articles to the other incorporated cells and the cell company
• The incorporated cell company and each cell submit one combined annual return
• The incorporated cell company is the only entity within the structure which is required to create separate accounts (which provide a true and fair view of incorporated cell accounts)
  

What are the potential advantages of the structure?

• Incorporated cells, being separate legal entities, may legitimately enter into binding legal contractual obligations with one another (such as providing credit, guarantees, loans etc)
• Each incorporated cell has a separately identifiable and registered existence which facilitates certain commercial transactions (such as borrowing) and reduces the legal complexity in creating commercial relationships
• The structure provides benefits and savings for group related operations by reducing the costs of audit fees and account preparation, annual return fees and administration of separate boards, shareholder registers
• The structure allows inter-related businesses which are in co-ownership to manage risk between certain types of enterprise (whether by business type or geographical spread)
• The structure is believed to be less likely to challenge and to inter-cellular contamination of creditors’ claims in the event of insolvency (as foreign courts are believed more likely to respect the assets of separate legal entities in the event of insolvency)
• The structure is less difficult to audit from a risk perspective (where in a PCC, for example, non-recourse agreements or recourse agreements between core and cells may come into play and where risk audit and compliance requirements are high). This potentially makes it far easier for commercial rating agencies to rate incorporated cells and for them to be utilised, for example in the issue of listed CD paper for securitisation purposes, or for certain insurance applications which may require a listed element for structuring or transformer purposes.
• The ICC structure as utilised in Guernsey provides additional opportunities than the provisions in other jurisdictions currently using a similar concept as in Guernsey, existing ordinary companies will be able to themselves become cells within an ICC – this means for example that a large group of operating companies, funds or other types of company can effectively amalgamate their company secretarial, reporting and accounting responsibilities within one ICC group by a very simple form of quasi-amalgamation which only requires simple resolutions and no court procedure. This would allow preparation of a single set of accounts, single annual returns, share register etc, whilst retaining the risk management requirements of keeping assets separate within different operating units. The operation can also be reversed so that an incorporated cell can itself become a stand-alone company, providing great flexibility.
  

This new concept, invented in the Channel Islands, provides another significant and groundbreaking tool for structuring international commercial transactions using cell companies. The legislation allows for improved clarity in the potential chain of liability for clients and intermediaries who may remain slightly suspicious of the PCC concept and should greatly assist, for example, the use of listed ICC cells in structured finance transactions.

When combined with many of the other benefits of offshore jurisdictions such as simpler financial assistance provisions and transparent and responsive regulatory requirements, the ICC is very likely to be a popular cell company structure for years to come.