Insolvency of a PCC
The second edition retains at its core a central and critical question, namely – will other jurisdictions recognise the PCC and its cells, especially in the event of an insolvency?
The short answer is that probably yes, and almost certainly for creditors that choose to engage with the PCC, but less likely if the PCC engages in compulsory insurances (such as motor liability) and particularly where the creditors are deemed to be involuntary.
A primary issue is recognition of the domicile’s laws by other jurisdictions. In this regard the authors note that Gibraltar and Malta have a distinct advantage because the EU Insurance Insolvency Directive requires mutual recognition of a local insolvency process. Clearly, the local jurisdiction will protect the concept of cell segregation of assets and liabilities.
Feetham & Jones argue that aside from international treaty or quasi-treaty requirements, the concept of ring-fencing liabilities should not conflict with accepted business practice. The problem, as the authors acknowledge, is that public policy concerns could intervene when the creditor is deemed involuntary as they would not have chosen to rank (amongst other creditors) only in respect of the assets of the cell.
The counter argument is that courts have always recognised that insurance policies can contain limitation of liability clauses. So long as the cell limitation concept is seen in this light – i.e substantive, rather than being seen as some form of (antecedent) blocking remedy contrary to the principle of treating creditors equally (pari passu), then the PCC concept may well survive such a test.
Suffice to say, there is as yet no specific case law on the subject; however the authors have rightly brought to the second edition an important Lords judgment in connection with the HIH insurance insolvency. In this judgment, the principle of respecting the insolvency proceedings of another jurisdiction (and also indirectly a weakening of pari passu) is very helpful for the future prospects of a PCC in the context of an insolvency. This is important, since a PCC is designed to provide a preference to creditors with respect to cells – this is the whole point of the PCC.
I have no doubt that in the event of future litigation or insolvency involving a PCC anywhere in the World that this book will be quoted extensively by practitioners and judges alike. Whether it will be cited with approval remains the open question. There is still no case-law on the subject which makes this book the legal reference point of choice.