Following major amendments to the Companies Act which were enacted on 16th June 2020, it is now possible for players in the shipping and aviation industries to incorporate cell companies within their corporate structures, and they may even convert their existing companies into cell companies.
Cell companies have been a part of Maltese legislation for nearly twenty years, but until the aforementioned amendments, the formation and conversion of cell companies were confined to the remits of the insurance sector, securitisation vehicles, incorporated cell companies and incorporated cells that carry on any financial services business.
In order to appreciate the impact of these amendments to the shipping and aviation sectors, it would be opportune to briefly examine the purpose of a cell company, and why you should consider incorporating a cell company within your corporate structure. 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.” Through a limited liability company, the responsibilities of the shareholders and those of their company are separate for the purposes of law. This means that the responsibility of the shareholders would be limited to the amount of capital that they invested in the company. In this regard, the most important benefit of creating a cell company would be to extend the concept of limited liability, and therefore better safeguard the assets of the shareholders. Through a cell company, one or more cells would be created to segregate and protect the assets of the company within those cells. Therefore, a creditor who might be owed money by your cell company would not be permitted to resort to your personal assets, the assets held by your limited liability company, or the assets held by your other cell companies. Such creditor would only be permitted to resort to the assets held by the cell company concerned, and the assets held in the cells of that same cell company.
Another advantage of cell companies is that they can be incorporated within a very short period of time and for a fraction of the costs involved in forming a new company. Company directors of shipping and aviation companies will now be able to respond quickly to any circumstances that may arise during their operations, as they will no longer be impeded by the several delays caused by the bureaucracy involved in incorporating new companies, or by their heavy set-up costs. When compared to limited liability companies, the ongoing administrative costs too would be substantially reduced through the use of cells.
However, it should be noted that cell companies may only be incorporated by shipping or aviation companies to conduct any of the following activities:
1. the ownership, operation (under charter, lease or otherwise), administration and management (including personnel engagement, employment or management whether on board or otherwise) 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; or
2. the holding of shares or other equity interests in any undertaking, whether Maltese or otherwise, established solely or mainly for the carrying on or carrying out of any one or more of the activities referred to in this definition and the carrying on of all ancillary financial, security, commercial and other activities in connection therewith; or
3. the activities of a parent company which holds shares or other equity interests in undertakings, whether Maltese or otherwise, where any one or some of these undertakings is established solely or mainly for the carrying on or carrying out of any one or more of the activities referred to in this definition and the carrying on of all ancillary financial, security, commercial and other activities in connection therewith; or
4. 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 in the preceding sub-paragraphs for the undertaking itself or for any other undertaking within the same group; or
5. the carrying on of such other objects or activities within the maritime or the aviation sector and related or connected matters which the Minister may, on the advice of the Authority, from time to time prescribe by regulations.
It should also be observed that a cell company is obliged to communicate in writing to any natural or legal person with whom they are transacting, that the company is a cell company. Indeed, the Memorandum and Articles of Association of the cell company must specifically designate its status as a cell company. This status must also be reflected in the name of the company, which must include the acronym MAPCC (which refers to “Mobile Assets Protected Cell Company”).
In the wake of the Covid-19 pandemic, and the various types of corporate restructuring that it encouraged, these amendments are especially welcome in light of the efficiency and cost-effective alternatives that they introduce to the shipping and aviation sectors.
Should you be interested in more information on the subject or wish to explore ways how this novel tool can be incorporated in a structure, please feel free to contact us for further information.
The above is intended for general information purposes only and should not be taken as legal advice.