1. Cellular Structures for Families The Protected Cell Company & The Incorporated Cell Company Mark Helyar – Partner Bedell Cristin, Guernsey mark.helyar@bedellgroup.com www.bedellgroup.com

2. Content The Protected Cell Company - history & basic structure Insolvency provisions Attribution of liability / statutory liability of directors The Incorporated Cell Company - general characteristics ICC “Hybrids” and potential family office applications

3. PLC CAPTIVE InsurancePremiums Why Segregated Cells ? – The Conventional Multi – Line Captive EL PD BI MO D&O Re

4. The PCC Captive Structure EL PDBIMO D&O PCC “CORE” Single legal entity

5. PCC Characteristics a.A PCC can be formed or converted from an existing (ie ordinary) limited company b.A protected cell company is a single legal entity c.The creation of a cell does not create a legal person separate from the PCC d.The provisions of the Companies Laws, except where specified, apply to a PCC (including insolvency & winding up)

6. PCC Characteristics 2 a.Current uses = umbrella funds, insurance, rent-a- captive, securitisation & hybrids –recently extended (May 2006) to non-regulated uses (ie asset holding) b.Not currently able to mix “regulated” uses in Guernsey (ie investment and insurance) c.Pay dividends according to respective cell and core profits d.Main benefit is single legal entity with the ring-fenced inter-cellular insolvency protection e.Consolidated accounts – all cellular shareholders have access to accounts

7. PCC Basic Insolvency Provision - Post May 2006 Core Cell A Creditor Cell B Cell C

8. PCC Basics – Attribution of Liability At Cell Level “It shall be the duty of the directors of a PCC to keep cellular assets separate and separately identifiable from non cellular assets; and To keep cellular assets attributable to each cell separate and separately identifiable from cellular assets attributable to other cells”

9. How does a PCC Director “attribute” liability in Guernsey ? S.11 PCC Ordinance – a director of a protected cell company shall: 1)Inform any person with whom it contracts that it is a protected cell company; and 2)Identify or specify the cell in respect of which that person is transacting, unless that transaction is not a transaction in respect of a particular cell

10. Third Parties & Contracts Between 1)X PCC Limited, for and on behalf of Cell Y; and 2)X PCC Limited, for and on behalf of the Core thereof; and 3)Third Party

11. Example PCC Core Cell A Cell B Contract Professional Advice Can the directors charge fees to Cell B if it was not made clear that the contractor would advise Cell B ?

12. PCC Basics – Guernsey – Default Liability What is the effect of failing to name a cell ? – S11(2) 1.The directors incur personal liability to that person in respect of the transaction; and 2.The directors shall have a right of indemnity against the non-cellular assets of the company, unless they were fraudulent, reckless or negligent, or acted in bad faith

13. Restrictions of the PCC - Third Parties & Contracts PCC CORE Single legal entity Third Party Contract Asset transfers

14. The PCC - Where Else Since 1997 ? Panama Guernsey Jersey Barbados Delaware Bermuda BVI Cayman Anguilla Brunei (Dar es Salaam) Vermont South Carolina Seychelles Isle of Man Belize Bahamas Washington DC Rhode Island St Vincent Mauritius Nevis Pennsylvania Utah Iowa District of Columbia Oklahoma Malta Gibralta Nevada

15. XYZ ICC Limited A IC Limited B IC Limited C IC Limited D IC Limited The Incorporated Cell Company Each a separate company

16. The Incorporated Cell Company Jersey invention - February 2006, Guernsey May 2006 Characteristics - Cells are separately “incorporated”, registered, identifiable and each is a separate legal entity in its 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

17. The Incorporated Cell Company 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 P&L and Balance Sheet (plus a true and fair view of incorporated cell accounts) The cells may elect to become un-audited in the same way as a conventional Guernsey asset holding company Arrangements can be made so that cell shareholders are not entitled to see the accounts of other cells

18. The Incorporated Cell Company An “ordinary” Guernsey company may elect by special resolution to become (or cease to be) an incorporated cell of an ICC, and vice versa (not available in Jersey) Incorporated cells pay half the equivalent amount in duty on share capital as a normal Guernsey company Cells can own one another, allowing for vertical as well as horizontal structuring (ie to create sub-groups) Cells can be formed as hybrids

19. The Incorporated Cell Company – Why ? 1.Perception of “risk” in the PCC structure (unproven) 2.Risk of foreign court not upholding inter-cell PCC protections during an insolvency where assets outside Guernsey 3.Easier to obtain credit rating of an ICC cell 4.ICC cells can contract with (and own) one another (ie provide financial guarantees, letters of credit, services etc) 5.ICC cells can own and hold real property – some jurisdictions do not recognise a PCC cell for this purpose 6.Hybrids may be suitable for complex family office applications

20. Hybrids – A Little Used Structuring Tool Guernsey law allows hybrid guarantee and share capital mixture for ICC cells A hybrid can be structured in a similar way to the European stiftung or foundation Subject to proper tax structuring, more appeal to Europeans suspicious of the trust concept In an ICC, cells can be tailored to suit requirements for large family office applications (property, investments, estate planning)

21. ICC Cell A Guarantee Provider All voting rights No right to dividends No right to assets on winding up Ordinary Capital Shareholder No voting rights Right to all dividends Right to all assets on winding up

22. ICC Cell A Cell B Cell C Cell D Investment Portfolio Property 1 Intellectual Property Property 2 Cell E LBG Trustee / Fiduciary Wasting / High Risk Assets

23. Conclusions PCC now in 40 jurisdictions Uses of segregated cell companies for private wealth management likely to grow further Very flexible vehicles for diversification and separation of risk The ICC promises to have more uses than simple SPV provision Expansion from regulated sector to any form of use allows segregated cell companies to be utilised for private client purposes Hybrids, provided tax advice works, can be very attractive to European clients

24. QUESTIONS