Dr. Matthew Bianchi

1
An Overview of Maltas PCC Regulations

• Dr. Matthew Bianchi
• Ganado Associates, Advocates
• 176, Old Bakery Street,
• Valletta VLT09, Malta
• mbianchi_at_jmganado.com
• www.jmganado.com
• January, 2007

2
Overview

• Maltese Laws Regulations
• Introduction to PCCs
• Legal Practical Considerations
• Insulation of Cellular Assets Liabilities
• Cell Dividends
• Cell Closure
• Transfer of a Cellular Assets
• Cell Solvency Requirements
• Management and Administration of PCCs
• Fees

3
Applicable Laws Regulations

• The Companies Act, 1995 (CA)
• The Insurance Business Act, 1998 (IBA)
• The Insurance Intermediaries Act, 2006 (IIA)
• The Companies Act (Cell Companies Carrying on
  Business of Insurance) Regulations, 2004 (PCC
  Regulations)
• The Insurance Business (Insurers Assets and
  Liabilities) Regulations, 2005 (Assets and
  Liabilities Regulations)
• MFSA Insurance Rules and Insurance Intermediaries
  Rules

4
The PCC Regulations

• Based on the provisions of the Guernsey Protected
  Cell Companies Ordinance, 1997.
• The PCC Regulations apply to
• Insurance undertakings / Affiliated Insurance
  Companies
• Insurance brokers
• Insurance managers.
• The PCC Regulations allow each of these types of
  companies to be either formed as or converted
  into Protected Cell Companies.

5
Introducing Protected Cell Companies

• A PCC is a regular trading company constituted as
  a Cell Company which is able to create one or
  more cells for the purpose of segregating and
  protecting the cellular assets of the Company.
• A PCC is at all times a single legal person.
  Cells within a PCC are not endowed with a legal
  personality seperate from that of the Cell
  Company.
• Some jurisdictions, namely Guernsey and Jersey,
  have now introduced the concept of Incorporated
  Cell Companies where each cell is bestowed with
  its own legal personality.

6
Protected Cell Companies Illustrated
7
Advantages of Protected Cell Companies

• Segregation of assets and liabilities.
• Cell assets are insulated from liabilities of
  the Core and of other Cells in the company.
• Enables promoters to shared overhead costs with
  other promoters without losing protection from
  the insolvency of others.
• Capital, Own Funds and some other regulatory
  requirements apply to the cell company as whole.
• Easier access to the captive market.
• Access to the reinsurance market for smaller
  investors.
• Shared administration e.g. Cells may interact
  with the Regulators/Authorities through the PCCs
  central administration.

8
Converting / Forming a PCC

• The MA of any PCC, whether incorporated afresh
  or converted, must satisfy the following
  conditions
• The company name must include the expression
  Protected Cell Company or PCC (e.g. Atlas
  Insurance PCC Limited)
• The memorandum must provide that the company is a
  cell company
• Every cell created by the company must have its
  own distinct name or designation
• The MA must distinguish between cell shares and
  non-cellular shares.
• PCC Statement
• A cell company must indicate in its business
  letters / forms that it is a cell company
• MFSA have developed adequate wording which Atlas
  Insurance PCC Limited is already using in all its
  forms

9
Objects Powers of PCCs

• A Company converting into a PCC must be empowered
  to do so in terms of its MA. The addition of
  this power is usually the first step to a
  conversion.
• Upon conversion/formation the Objects of the
  Company should extend to the promotion, creation,
  management, administration of Cells
• The Powers of the Company should include the
  power to achieve these objects and to trade/deal
  in respect of the various Cells created by the
  Company.

10
Creation of Cells

• Cell shares
• A Cell is a class of shares designated as a Cell
  by the Company
• A PCC will typically have ordinary shares issued
  to the promoters of the Company (core shares or
  non-cellular shares) and various classes of Cell
  shares issued to Cell promoters
• The PCC may also have classes of shares which are
  not designated as cell shares. These will not be
  subject to the PCC Regulations e.g. Assets,
  liabilities will not be segregated
• It is common practice for Cell shares to be a
  class of preference shares but the law imposes no
  restrictions. Cell shares may be ordinary shares
  in the company too.

11
Cell Share Rights

• The MA must allow the company to issue classes
  of shares and to designate same as Cells.
• The MA may even create certain restrictions
  which the promoters may wish all Cells to be
  subject to. For instance
• Should Cell Shareholders have a right to vote at
  general meetings too?
• Should they be allowed to organise Cell
  shareholder meetings? What would the purpose of
  any such meetings be?
• Should the Company be able to attend Cell
  Shareholder meetings?
• Should the MA provide for resolution
  thresholds/quorums of such Cell meetings?
• Should the Company be bound by resolutions of a
  Cell meeting? Or should the meeting simply
  recommend to BOD?
• Should the Cell meeting approve cellular
  dividends?

12
Segregation / Assets Liabilities

• Assets and Liabilities of the PCC may be either
  Cellular or Non-Cellular
• Cellular assets of a particular Cell must be
  separate and identifiable from other cellular
  assets and non-cellular assets of the PCC
• The Directors of the PCC are responsible for the
  separation and segregation of assets at all times
• Collective management or investment of assets is
  permitted as long as identification is possible
  at any time. This is particularly applicable to
  fungible assets
• The Regulations also allow a PCC to hold cellular
  and non-cellular assets through a subsidiary
  company whose shares constitute Cellular or
  non-Cellular assets

13
Cellular Assets

• Cellular Assets comprise
• The proceeds of Cell Share Capital
• Reserves attributable to the Cell including
  retained earnings, capital reserves and share
  premium reserves
• Any other assets attributed to the Cell and held
  by the PCC
• Non-Cellular assets are all assets of the PCC
  which are not attributable to a Cell.

14
Recourse to Cellular Assets

• Assets attributable to a Cell may only be used to
  satisfy claims made by creditors of the
  particular Cell
• Creditors of a particular Cell have no right of
  recourse against cellular assets of another Cell
• Creditors of a Cell also have a right of
  secondary recourse to non-cellular assets of the
  PCC but only once cellular assets of that
  particular Cell have been fully exhausted
• Creditors of the PCC which are not creditors of a
  particular Cell only have a right of recourse
  against the non-cellular assets of the PCC

15
Insulation of Cellular Assets

• The Regulations address this issue in detail
  because it is one of the key features of any PCC
  legislation
• Firstly, the Regulations prohibit any person from
  making (or attempting to make) any claim against
  assets attributable to a Cell for which he is not
  a creditor
• Secondly, the Regulations provide that should
  anyone manage (by any means) to use cellular
  assets to satisfy a liability not attributable to
  that particular Cell, such person will be liable
  to pay back the value of the benefit thereby
  obtained

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Insulation of Cellular Assets (contd.)

• If an executive warrant is issued and enforced on
  the assets of a Cell in respect of a liability
  that is attributable to another Cell or to the
  Core and it is impossible to restore or
  compensate the said assets lost by the Cell, then
  the Company is
• obliged to instruct its auditors (acting in an
  expert capacity) to establish the true value of
  the assets lost by the cell and
• to transfer such amount from the cellular or
  non-cellular assets of the Company to which the
  liability was properly attributable
• Moreover, if the Cell to which the liability was
  properly attributable does not have sufficient
  cellular assets to compensate the Cell affected,
  the Company is required to make up the difference
  from the non-cellular assets.

17
Cellular Dividends

• The PCC Regulations provide that Cellular
  Dividends are
• dividends payable by a PCC in respect of Cells
  Shares.
• cellular dividends may be paid by reference
  only to cellular assets (including reserves) and
  liabilities, or the profits attributable to the
  cell
• The MA must provide for a the issue of cellular
  dividends in relation to profits of the
  particular cell independently of any profits or
  losses of the Core or of any other Cell in the
  PCC
• Dividends are determined by the Board as in any
  company and approved by the members. The MA will
  typically allow Cell shareholders to approve or
  decline the cellular dividend.
• This could be one of the functions of the Cell
  class meetings
• This distinguishes Cell Shares from typical
  preference shares with fixed coupon / interest
  rates

18
Redemption of Cell Shares

• Both the PCC Promoters and the Cell Shareholders
  will want to retain control over termination of
  the Cell.
• Termination of a Cell implies winding up or
  liquidating the cell and redeeming the Cell
  shares out of profits and assets therein.
• The Cell Class meetings should be empowered to
  meet to resolve the redemption of the Cell Shares
  or to request the Directors to do so. Cell
  Shareholders in Atlas Insurance PCC will have the
  right to make such a request to the Board.
• MFSA may issue regulations to govern Cell
  liquidation.

19
Transfer of Cellular Assets

• Cell companies may transfer cellular assets to
  third parties, including other Cell companies.
• The transfer must be approved by the MFSA.
• The MFSA will only approve the transfer if
  creditors of the cell have been informed of such
  transfer and consented.
• The transfer of cellular assets to another person
  shall not of itself entitle creditors of the cell
  to have recourse against other assets of the
  transferee.
• Cell transfer approval is not required for
  transfers made in the course of ordinary
  administration of the cellular assets e.g. In
  order to invest the cellular assets, make
  payments, settle claims etc.

20
Cell Solvency Requirements

• Each Cell in a PCC must satisfy the solvency
  requirements under the Assets Liabilities
  Regulations individually.
• Solvency is not calculated on a consolidated
  basis (Core Cells) as one Cells surplus
  cannot make good for the solvency deficit of
  another cell.
• It is only the minimum guarantee fund (plus any
  buffer which may be required by the MFSA) which
  applies to the PCC as a whole.
• The valuation of assets and exposure limits
  provisions in the Assets Liabilities
  Regulations apply to both cellular assets and
  non-cellular assets.

21
The Management of the Cells

• As a general rule, the management of each of the
  Cells and their assets and liabilities is
  entrusted to the Board of Directors of the PCC.
• The Board of Directors may delegate the
  management of a particular Cell or Cells to 3rd
  party Insurance Managers. In which case the
  Managers will always be subject to the overall
  supervision and control of the Board.
• The Board may also establish a committee or
  commitees to oversee the administration of a
  particular Cell. The Committee will be
  accountable to the Board and should report
  regularly.
• Persons who may sit on this committee may include
  a representative of the third party Insurance
  Manager, Investment Advisors, Shareholders, etc.
• It is important to keep in mind that ultimate
  responsibility for the handling of Cellular
  Assets remains with the Directors.

22
MFSA Fees

• Insurance Undertakings
• MFSA Fees in respect of each cell
• - Submission of application - Lm300
• - Acceptance of application - Lm300
• - Supervisory Fee (annual) - Depends on Gross
  Premiums
• Receivable by the Cell.
• Insurance Intermediaries
• MFSA Fees in respect of each cell
• - Submission of application Lm100
• - Acceptance of application Lm100
• - Supervisory Fee (annual) Depends on Gross
  Commissions
• Receivable by the Cell.

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Thank you