Author: Nicolai Vella Falzon, Partner

Summary: Recent amendments to the Companies Act provide for the incorporation of cell companies for the aviation business, thereby giving companies operating in this sector the ability to ring-fence certain assets.

Article

Provision in the Companies Act for the incorporation of, or conversion into, so-called ‘cell companies’ was first introduced in 1998 as part of the amendments to other laws contemplated by the new Insurance Business Act promulgated at the time. Although it was only later in 2011, with the introduction of the  Companies Act (Incorporated Cell Companies Carrying on Business of Insurance) Regulations, that it became first possible to use cells in practice, since then they have been widely used with success in the insurance sector. The use of cell companies was later widened making them available to securitisation vehicles and investment companies with variable share capital.

By virtue of further amendments to the Companies Act brought into force by Act V of 2020 published on 3 March 2020, authority has now been granted for the issue of Regulations to further extend the use of cell companies, incorporated cell companies and incorporated cells to, inter alios, companies operating in the ‘aviation business’.

The term ‘aviation business’ has been given a rather wide definition to include not just the ownership or operation of aircraft but also the management of aircraft (including crewing companies) and all ancillary activities connected therewith.  Furthermore, financiers and providers of security to companies operating the said activities will also be deemed to operate within the ‘aviation business’ as will companies which hold shares in such companies.

The implications of these amendments and of the Regulations which are yet to be issued in virtue of these recent amendments are far reaching indeed.  Following the advantages already available to insurance, securitisation and collective investment entities, incorporated cell companies and their incorporated cells now provide an opportunity for companies within the aviation sector to ring-fence their assets or rights, as the case may be, so that they are outside the reach of creditors or other third parties having claims in relation to assets other than those within a specific cell. Furthermore, in the event of insolvency of a cell, that insolvency will have no effect on 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’).  Indeed, the law also contemplates the formation of incorporated cells as limited liability companies with separate legal personality from each other incorporated cell and the cell company itself.

It is understood that the Regulations contemplated in these recent amendments to the Companies Act and which will activate, so to speak, the ability for companies operating in the aviation business to form or convert into cell companies are in the process of being drafted and that their promulgation is imminent.  The Regulations will provide interesting opportunities for businesses operation in the aviation sector, which are invited to watch this space.

For more information, please contact:

Dr Nicolai Vella Falzon, Partner – nicolai.vellafalzon@fenlex.com

Dr Joseph Ghio, Partner – joseph.ghio@fenlex.com