InsolventCell

August 05, 2014

SutherlandLogoSmallFrom Bruce Wright of Sutherland Asbill & Brennan LLP:

The result will depend on the terms of the cell company. Some have been structured so that the general account is responsible until the minimum capital level is reached. In others, the general account cannot be affected. Cell companies do not work like sponsored captives (e.g., in Vermont) where a third party sponsor is responsible if the cell account does not have sufficient funds to pay the liabilities of the cell. Thus, a cell operates as nothing more than, in most instances, as a surrogate for a captive. However, because of its structure there are certain questions as to how it will be treated, e.g., for tax purposes. In some cell arrangements either the cell company or the ceding company will require that the so called "gap" be funded . The gap being defined generally as the difference between the assets in the cell and the liability on the contract which has been assumed.

[Disclaimer: This reply does not constitute legal advice. Please consult Bruce should you desire specific legal assistance with your own captive questions.]