Summary: Recent amendments to the Companies Act provide for the incorporation of cell companies involved in shipping business, thereby affording them with the ability to ring-fence certain shipping business.
Following the enactment of the Companies Act (Incorporated Cell Companies Carrying on Business of Insurance) Regulations back in 2011, the incorporation of, and the conversion into so-called 'cell companies' is now considered as an invaluable asset within the insurance sector. The ability to use cell companies was subsequently also made available to securitisation vehicles and investment companies with variable share capital.
Recent amendments to the Companies Act introduced by virtue of Act V of 2020 have now also paved the way for companies operating within 'shipping business' to possibly make use of cell companies. The said amendments provide the relevant Minister with the necessary legislative power to enact Regulations in order to regulate such matters further.
It is interesting to note that Act V of 2020 has adopted a wide definition of the term 'shipping business'. The said term is not limited solely to the ownership, operation (under charter, lease or otherwise), administration and management of any ship (including the management of crew). Financiers and providers of security to companies carrying out the aforementioned activities are also deemed to be operating within the 'shipping business' for the purposes of this legislation. Likewise, parent or holding companies with subsidiaries also fall within the scope of 'shipping activity'.
Cell companies and cells could now provide an opportunity for companies within the shipping and yachting sector to ring-fence their assets or rights, as the case may be, so that they are outside the reach of creditors or any third parties having claims in relation to assets other than those within a specific cell. This could be particularly useful within the context of ship or yacht management companies, where it is not uncommon that companies simultaneously service numerous different fleets or clients.
Furthermore, the insolvency of a particular cell will not affect the solvency or otherwise of the other cells or the cell company itself. This is achieved because a company (or a partnership en commandite or similar or equivalent body corporate the capital of which is divided into shares) formed as, or converted into, a cell company has the ability to create within itself one or more independent cells for the purposes of placing therein and thereby ring-fencing and protecting specific assets (so-called 'cellular assets').
Moreover, Act V of 2020 also grants the Minister the legislative faculty to regulate the formation of incorporated cell companies carrying out or engaged in shipping business and incorporated cells as limited liability companies with separate legal personality from each other incorporated cell and the incorporated cell company itself.
The relevant Minister has yet to enact Regulations pursuant to the above amendments, however it is expected that such subsidiary legislation should be promulgated shortly. It will be interesting to note to what the extent the Minister will apply the powers granted to him under the enabling law. Nonetheless, the implications of the enabling amendments are already quite far reaching, particularly within the ship and yacht management industries. Businesses operating within the said industries are invited to watch this space.
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