Dec 2024
A Segregated Portfolio Company (SPC) provides for the protection of the assets held under one portfolio by ring-fencing them from the liabilities of other portfolios in the same company. SPCs were introduced in the Cayman Islands in 1998 for certain insurance businesses and, from 2003, have been capable of being registered without restriction on the business undertaken. Consequently, SPCs are used for a wide range of fund structurings, including private equity, venture capital, real estate funds, hedge funds, debt-issuing and asset-holding vehicles as well as Cayman insurance.
Whilst structures similar to the Cayman Islands’ SPC have been replicated in other jurisdictions, including those onshore, Cayman has the distinction of having built up a body of definitive case law examining the segregated portfolio principle. This is important in light of the significant numbers of SPCs in operation in Cayman.
ABC Company (SPC) v J & Co Ltd (unreported 2012) was the first time the Cayman Islands Court of Appeal had considered the SPC structure. It centred on whether an SPC could be wound up on the basis of the insolvency of certain segregated portfolios only and whether the suspension of share redemptions in those segregated portfolios amounted to a loss of substratum for the SPC itself. The Court found that the failure of some segregated portfolios would not mean the SPC as a whole had lost its substratum as there were other solvent segregated portfolios which were operating normally and accepting subscriptions, as well as processing redemptions. The Court also determined that there was no jurisdiction to wind up a segregated portfolio on the just and equitable ground, only the SPC as a whole. The Court may make a receivership order in respect of a segregated portfolio on the grounds of the insolvency alone. This case provided reassurance that the Court would uphold the segregation principle inherent in the SPC structure.
In the matter of Performance Insurance Company SPC (In Official Liquidation) (unreported, 2021) the Grand Court of the Cayman Islands highlighted that a SPC’s key feature is that the assets and liabilities of each segregated portfolio are ring-fenced from any other portfolio within the SPC. In Green Asia Restructure Fund SPC (unreported, 2022), the Court considered the appointment of receivers to certain segregated portfolios of an SPC. It found that if the business conducted through a segregated portfolio is no longer viable, the segregated portfolio can be wound-up, by analogy with a liquidation, through the receivership regime prescribed under the Companies Act, and that the other segregated portfolios will be unaffected.
Most recently in 2024, in Aquam Funds SPC and Premier Life Settlement Fund SP (unreported, 2023), the Court granted a receivership order over the segregated portfolio in light of the claims of redeeming shareholders who had not been paid. The Court was satisfied the segregated portfolio was insolvent and thus the receivership order should be made pursuant to the Companies Act for the orderly closing down of the business of the segregated portfolio and the distribution of its assets to the redeeming shareholders and other creditors.
These important decisions confirm that, where one or more segregated portfolios of an SPC are insolvent, the Cayman Islands Court will uphold the segregation principle and the statutory regime for receivership orders.