Malta: Malta and securitisation cell companies

Mark Galea Salomone	Kirsten Cassar

Malta's Securitisation Cell Companies Regulations provide the legal framework to establish Maltese securitisation cell companies (SCCs), which are essentially structures that can create segregated cells for various securitisation transactions, including insurance-linked securitisation.

Drawing on its experience in legislating for "cells" in the investment fund and captive insurance industries, the local legislature recently introduced a cell company framework for securitisation vehicles and reinsurance special purpose vehicles.

The Securitisation Cell Companies Regulations allow multiple securitisation transactions or insurance linked securities to be launched without any risk of cross contamination between different sets of creditors/investors. They do this by allowing different assets and risk instruments to be segregated within a single securitisation vehicle (SV). A SCC can take one of two forms:

1) One that carries on business as a SV in compliance with the Securitisation Act; or

2) One that carries on business as a reinsurance special purpose vehicle (RSPV) in compliance with the RSPV Regulations.

A SCC may be established as a limited liability company, either private or public.

The assets of a SCC are divided into cellular and non-cellular assets. A SCC is a single company with one board of directors and one set of Memorandum and Articles of Association. The assets and liabilities of each cell comprised in a SCC are treated as a patrimony separate from the assets and liabilities of each other cell of the SCC, and from the assets and liabilities of the SCC itself.

Through the creation of individual cells, the SCC is able to limit its liability in respect of a particular transaction to a specified pool of assets rather than exposing all the assets of the SCC. Therefore, a creditor of a cell has rights to the assets of that particular cell only and has no recourse to the assets of other cells or the non-cellular assets. Furthermore, in the event of insolvency, the insolvency of one cell has no effect on the solvency of the other cells. A SCC is a single legal person and the creation by a SCC of a cell does not create, in respect of that cell, a legal person separate from the SCC. Since the cells of a SCC are not vested with separate legal personality, each cell is bound to transact through the SCC.

The Maltese tax position of SVs – and therefore SCCs – is generally neutral. SVs established in Malta are taxable in Malta under the normal income tax rules at the standard income tax rate. However, a SV in Malta can, after deducting any ordinary costs and expenses, deduct any remaining income as cost from its profits. Due to this 'residual deduction' no taxable profits should effectively remain at the level of the SV ensuring tax neutrality at the level of the SV. As such, a Maltese SV can issue both equity and debt based instruments without compromising its tax neutral treatment.

From a VAT perspective, it is worth noting that the management of an SV may fall within the ambit of an exemption contained in the Malta VAT Act applicable to the management of investment schemes, provided that the services supplied are limited to those activities that are specific to and essential for the core activity of the scheme. Accordingly, collateral management fees and investment advisory fees may also be covered by this VAT exemption. Other services, such as underwriting fees and placement fees, may be covered by the VAT exemption contained in the Malta VAT Act applicable to the negotiation of securities. Rating agency fees, however, are typically considered to be taxable in Malta at the standard rate of 18%.

The above described regulatory and fiscal regime has put Malta on the map as a domicile of choice for the launching of securitisation structures and the issuance of insurance linked securities.

Mark Galea Salomone (mark.galeasalomone@camilleripreziosi.com) and Kirsten Cassar (kirsten.cassar@camilleripreziosi.com)

Camilleri Preziosi

Tel: +356 2123 8989

Website: www.camilleripreziosi.com