Authors: Adrian Attard and Mia Stüve.
Pursuant to the enactment of Act V of 2020, amendments were introduced into the Maltese Companies Act (the ‘Act’), which sought to empower the responsible Minister with the necessary legislative powers to enact regulations to allow for, and to regulate, the possibility of companies operating within the shipping and aviation sectors to make use of cell companies. That same year, the Companies Act (Shipping and Aviation Cell Companies) Regulations (the ‘Regulations’) were enacted paving the way for, inter alia, the use of cell companies carrying out shipping activity.
One of the most conspicuous benefits of a cell company is that it allows the company to ring-fence specific assets or rights within cells, so that these would accordingly fall outside the reach of creditors or any third parties having claims in relation to assets, other than those within a specific cell. Naturally, this characteristic of a cell company could be advantageous to ship-owners, who predominantly with a view to mitigate its risk exposures, tend to incorporate a new special vehicle company for each vessel they own. Should a creditor have a claim against a particular vessel, the traditional structure would ensure that no claim or sister ship arrest would be permissible against another vessel in the owner’s fleet. Likewise, using a cell company, should give ship owners the same protection without the need of incorporating numerous SPVs.
However, the use of cell companies is not restricted to ship owners. Whilst the Regulations apply exclusively to cell companies carrying out relevant activities, the latter term is defined as meaning ‘the conduct of shipping or aviation business as defined in article 84E of the Act’. The cited article in turn includes, amongst other activities, in the definition of shipping business, “the ownership, operation (under charter, lease or otherwise), administration and management of any ship (including the personnel engagement, employment or management whether on board or otherwise) of any ship… and the carrying on of all ancillary financial, security, commercial or other activities in connection therewith”. Accordingly, the management of ships (including crew management) would appear to be relevant activity and ship management companies can thus avail themselves of the use of a cell company under the Regulations.
Certainly, ring-fencing could be particularly useful within the context of ship or yacht management, where it is not uncommon for companies in this sector to simultaneously service numerous different fleets or clients. This could give ship or yacht management companies some peace of mind in terms of risk exposures, particularly when managing numerous fleets of vessels. Likewise, there is merit in exploring the possibility to create distinct cells within a cell company to separate the different facets of their business activity. For instance, it would allow them to segregate their crew management activity, from their technical or commercial management of vessels.
Another benefit of operating a cell company is that the Regulations provide that notwithstanding that such a company may have created one or more cells, it remains a “single legal person” and as such, the creation of cells does not create separate or distinct personality in respect of those cells. From a regulatory perspective, this would imply that all the activity in the distinct cells, could still operate under the same certification and licenses issued in the name of the cell company. Accordingly, for example, all the cells within a cell company may technically operate under the same document of compliance (DOC) which the cell company may hold. Similarly, it should be possible to operate under one insurance policy issued in favour of the cell company. Thus, a management company could manage to ring fence different parts of its business, without having to set up new corporate entities and without having to get the necessary flag certification for each entity. Moreover, this would naturally translate into less costs as the ship management company would not need to incur the additional expenses of setting up and maintaining numerous companies or legal entities.
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 is able 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’).
The above examples are just some of the possible advantages which a cell company could offer ship or yacht management providers. To the best of the authors knowledge, to date however, only players within the aviation sector have availed themselves of the provisions of the Regulations. Nevertheless, the Regulations offer the same myriad of benefits to key stakeholders within the shipping sector.
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