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25 May 2016 Insurance

Courts globally likely to uphold PCC legislation, says Gibraltar memorandum

As the use and understanding of protected cell companies (PCCs) becomes more widespread, the chance of a court failing to recognise and uphold PCC legislation also decreases, especially in domiciles such as Gibraltar where the structure should be perfectly understood by the courts.

That is one of the key conclusions of a memorandum concerning the use of protected cell captive structures under Gibraltar law, which has been made available online.

The author, Nigel Feetham, a senior partner at law firm Hassans International, is a global authority on captives and PCCs. He, along with Grant Jones, was the co-author of “Protected Cell Companies: a Guide to their Implementation and Use”, which was recently cited in PAC Re 5-AT v Amtrust North America, a recent and significant decision by the Montana Federal Court.

The memorandum makes it clear that the segregation of assets and liabilities in PCCs would be recognised and understood by a Gibraltar Court and also that no court in the world has thus far failed to give effect to PCC legislation.

“A Gibraltar Court applying PCC legislation should have no reason not to give effect to the statutory segregation of assets and liabilities,” Feetham states in the memorandum. “I am not aware of a Court ruling anywhere in the world where the Court has declined to give effect to PCC legislation or hold that the PCC regime is contrary to public policy, although there are only a few reported decisions on PCCs as far as I am aware (including the recent decision of the Montana Federal Court).

He adds that while it acknowledges that it is possible that a foreign court may not recognise the PCC regime, this possibility becomes less likely as more jurisdictions implement PCC legislation or a similar statutory regime.

“Whilst one cannot rule out the possibility that a foreign Court might not recognize the PCC regime and one would therefore need to take local advice in each relevant country, arguably it is less likely as more jurisdictions implement PCC legislation or a similar statutory regime and more countries develop experience with them,” he says.

He adds that unless the PCC has assets abroad that could attach to a claim in foreign Court proceedings, this lack of recognition should have no practical consequences. “A cell creditor is unlikely to be able to enforce a claim against the assets of other cells in a country that itself has implemented PCC legislation as part of its domestic law,” he says.

The memorandum also concludes that where a PCC has contractual arrangements in place with its insured and cell shareholders that reinforce the ‘statutory ring-fence’, any potential lack of recognition of the PCC regime should be less of a risk. This is because: “There should be less reason for a Court to disturb such contractual arrangements if, as a matter of contact law, the relevant provisions are enforceable in accordance with their terms.”

The Memorandum has been made available on a non-reliance basis and without any liability. A copy can be found here.

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