From: Captive.com/IRMI
Editor’s Note: The following article is provided to us by Peter Child, CEO at Strategic Risk Solutions (SRS) Europe, and is reprinted here with permission.
Protected cell company (PCC) legislation was enacted by the States of Guernsey 25 years ago, introducing the world to the concept of the cellular company. A number of local legal and insurance practitioners were involved in the genesis and drafting of legislation, but it is Steve Butterworth, the insurance regulator at the Guernsey Financial Services Commission (GFSC) at the time, who is widely held as being the progenitor of the concept and the driving force who saw that concept through to fruition.
When he moved to the GFSC from the Cayman regulator in the mid-’80s, Mr. Butterworth brought the concept with him. It had been inspired by the common use of rent-a-captive facilities in the Caribbean jurisdiction. These were single corporate bodies that were licensed to write insurance business and “rented out” share capital to third parties so that they could take advantage of the captive concept at lower cost to entry and with faster speed of establishment. There was a desire in Cayman of both sponsors and users of these facilities to provide greater asset protection than could be offered by just contractual agreement and strict application of accounting protocols that Mr. Butterworth found replicated in Guernsey.
The first PCC law of 1997 enabled formation of a single legal entity that encompassed both a core and a theoretically infinite number of cells. The core and cells were differentiated by the issue of share classes, which provided the shareholders with different rights. Core shareholders had those rights that would usually attach to ordinary shareholders (i.e., voting rights at shareholders’ meetings and the right to distributions arising from profits attributable the core of the company). Cellular shareholders had rights only to distribution of profits arising from the specific cell to which their shares referred. At the same time labilities of the companies were segregated so that creditors would have recourse only to the assets of the core or the assets of the cell with which they had contracted (actually, the first draft of the law provided for a default position whereby cellular creditors enjoyed automatic recourse to core assets, but this was soon reversed).
So, a corporate form was born that added statutory protection to the rent-a-captive concept. Early uses of the PCC were generally restricted to captive insurance vehicles, and through the captive boom of the mid-to-late ’80s and through the early ’90s, Guernsey protected cell companies grew consistently as a new type of home for captives that, similar to the rent-a-captives, were distinguished by lower cost and faster speed of entry. Guernsey’s success was soon emulated around the world with numerous variations of the cellular vehicle springing up, first in other international insurance domiciles, and later onshore, notably in the United States and United Kingdom. There are now versions of cellular companies in more than 40 domiciles worldwide.
