New Regulations in Malta allow the Shipping and Aviation Sector to benefit from cell companies
19 Jun 2020
In virtue of the Companies Act (Shipping and Aviation Cell Companies) Regulations of 16th June 2020, the Minister for Economy Investment and Small Businesses provided for the formation and conversion of companies operating in the shipping and aviation sector into cell companies.
Prior to such regulations, the formation and conversion of cell companies was only available in the field of insurance and securitisation vehicles.
Those old enough to remember, may recall it used to be possible to set up a company in one day, in Malta. As it now takes a few days to set up a company, due to the sheer volume of companies being set up every day, as well as the compliance requirements introduced over the course of the past 10 years, the ability to set up new cells under the same company will give company directors of companies conducting shipping or aviation business the ability to be nimble in their corporate structuring, and set up cells quickly, as needed, for a fraction of the set-up costs and ongoing administrative costs which setting up new companies would entail.
“Shipping or aviation business” is defined in article 84E of the Companies Act as:
- The ownership, operation under charter, lease or otherwise, administration and management of any ship or of any aircraft or aircraft engine and the carrying on of all ancillary financial, security, commercial and other activities in connection therewith;
- The activities of a parent company and, or the company which holds shares or other equity interests in undertaking, whether Maltese or otherwise, where any one or some of these undertakings is established solely or mainly for the carrying out of any one or more of the activities referred to hereabove and the carrying on of all ancillary financial, security, commercial and other activities in connection therewith;
- The raising of capital through loans, the issue of guarantees or the issue of securities by an undertaking when the purpose of such activity is to achieve the objects or activities stated above for the undertaking itself or for any other undertaking within the same group.
Article 84A(2)(b) of the Companies Act defines a cell as one created by a cell company “for the purpose of segregating and protecting the cellular assets of the company in such matter as may be prescribed.”
- Even though a cell company may create one or more cells, a cell company is a single legal person. Therefore, the creation of a cell by a cell company does not create, in respect of that cell, a legal person separate from the company. Nevertheless, each cell of a cell company shall have its own distinct name or designation.
- Cell companies are distinguishable from other companies through their name, which must have the words ‘Mobile Assets Protected Cell Company’ or “MAPCC” included in the name.
- The memorandum and article of association of a cell company shall also state that it is a cell company.
- A cell company is obliged to indicate in writing, to any person with whom it transacts, that it is a cell company.
- The assets of a cell company shall be either cellular assets or non-cellular assets. The assets attributable to a cell of a cell company comprise assets represented by the proceeds of cell share capital and reserves (which includes retained earnings, capital reserves and share premiums) attributable to the cell and all other assets attributable to the cell.
- The directors of a cell company have duties and responsibilities like any other director of a non-cell company and in particular, they must keep cellular assets separate and separately identifiable from non-cellular assets, cellular assets attributable to each cell separate and separately identifiable from cellular assets attributable to other cells and separate records, accounts, statements, and other documents as may be necessary to evidence the assets and liabilities of each cell, as distinct and separate from the assets and liabilities of other cells in the same company.
The advantages of a cell company:
- A cell company may create one or more cells for the purposes of segregating and protecting cellular assets in the manner provided in the regulations.
- A cell company may pay a dividend in respect of cell shares.
- Limited liability of each cell
Limited Liability of each cell:
- Nobody may seek to use cellular assets attributable to any cell of the company to satisfy a liability not attributable to that same cell;
- Cellular assets attributable to a cell of a cell company shall be absolutely protected from the creditors of the cell company who are not creditors in respect of that cell and who accordingly are not entitled to have recourse to the cellular assets attributable to that cell;
- If any liability arises which is attributable to a particular cell of a cell company, only the cellular assets attributable to that cell shall be used to satisfy the liability and any cellular assets not attributable to the relevant cell shall not be used to satisfy the liability;
- Any proceedings in relation to one cell shall not have any effect on the assets of any other cell of the cell company or of the cell company itself;
- If any party succeeds by any means whatsoever in using any cellular assets attributable to any cell of the cell company to satisfy a liability not attributable to that cell, that party shall be liable to the cell company to pay a sum equal to the value of the benefit thereby obtained by him.
We foresee these Regulations will be useful to the shipping and aviation industries, just as they have been useful to the insurance and securitisation industries, as a tool for restructuring (especially post COVID-19 pandemic) and ring-fencing one venture from another, without having to set up a new company. We welcome any amendment to the law which allows business to be nimble, or which offers solutions which can be applied as needed.
Article written by Davinia Cutajar, Partner and Charlotte Attard, Junior Associate