Jersey Court Clarifies Legal Status of a Cell in a Jersey PCC

The provisions of the Companies (Jersey) Law 1991 (the “Law”) relating to cells of a protected cell company (“PCC”) have recently been considered by the Royal Court in the case of Re Ashburton Global Funds PCC.

The Law states that a cell is not a corporate body and has no legal identity separate from that of the PCC.  This is despite a cell having its own board of directors and its own shareholders, being required to have its own Memorandum and Articles of Association, holding its own assets and liabilities and it being possible to wind up the cell without affecting the existence of the PCC.

The issue that arose in the Ashburton case was whether, given the restrictions of the Law and the lack of corporate capacity, a cell of a PCC could nevertheless enter into an arrangement with its members that would lead to an application to the Royal Court for approval of a scheme of arrangement, and whether the cell could submit the application to the Royal Court in its own right.

The proposals involved two cells of Ashburton Global Funds PCC convening meetings of the registered holders of ordinary shares in each cell as the first stage of the schemes of arrangement. At these meetings, the shareholders would be asked to consider and if thought fit approve a scheme of arrangement whereby the assets of each cell would be transferred to a separate sub-fund of a Luxembourg-based SICAV.  The consideration for the transfer of assets would be the issue of shares in the sub-fund, which would be held by nominees on behalf of each cell.

The directors of each cell sought an order from the Royal Court under article 125(1) of the Law.  This provides that where an arrangement is proposed between a company and its members, the court may, on application of the company, order a meeting of the members to be convened in such manner as the Court directs.  The question of whether a cell of a PCC could be considered a company for this purpose was therefore crucial.

The Court held that the cells could independently enter into the arrangements with their shareholders and bring the applications for approval of the schemes of arrangement to the Court.  The reasoning was that article 127YD(3) of the Law provides that a cell can, in some circumstances, be treated as a company for the purpose of the application to it of the Law. Section 127YD(4) goes on to state that for the purposes of paragraph (3), the Law shall apply to a cell of a PCC as if any reference in the Law to a company or any company matters were a reference to a cell.

Thus, while there is no change to the general principle that cells of PCCs are not considered separate corporate entities, the Court has confirmed that they will be treated as companies for the purposes of the statutory provisions of the Law.

As a side issue, the Court also held that the holders of the management shares in each cell which had no economic interest in the assets of their cell and no voting rights were not a separate class of shares for the purposes of convening the meetings to consider the schemes.