Earlier this month I hosted a webinar in Hong Kong entitled “Offshore Separate Portfolio Company: Flexible Ring-Fencing in the World of Insurance, Funds and Family Office”. Having spent 17 years in Conyers’ Bermuda office before joining Hong Kong, separate portfolio companies (SPCs) or segregated accounts companies (SACs) were a big part of my practice. I saw increasing adoption of these structures amongst my US and European clients, but was surprised to see a low level of use or even familiarity in the Asian markets. In a totally non-scientific poll conducted live during the session, only 20% of the audience had worked with or encountered such entities.
So what are SPCs and SACs?
SPCs and SACs are offshore limited liability companies with an added twist. By virtue of local legislation, they may create and operate multiple separate portfolios of assets within a single company, each of which is legally isolated from each other and from the general non-portfolio assets of the company. Each portfolio or account is created for the exclusive benefit of a group of persons.
Each portfolio or account is responsible for its own business mandate, assets and liabilities and the creditors of one portfolio cannot have legal recourse or make legal claims against the assets of another portfolio or of the company itself by statutory law. This applies even if there are insufficient funds in the portfolio to pay off the debts and claims of its creditor or if the SPC/SAC itself is liquidated or wound-up. General creditors of the SAC/SPC unrelated to the portfolio cannot have legal recourse to the assets of the portfolio even in liquidation and any liquidator appointed must respect the order and priority of payments set out and agreed between the stakeholders with respect to that portfolio. Accordingly one portfolio has no correlation to another portfolio because each portfolio is individually segregated or “ring-fenced”; the success or failure of one portfolio will have no impact on the success or failure of another portfolio.
SACs and SPCs are prevalent in the reinsurance and investment fund industry to ring-fence different asset pools.