A segregated portfolio company (or SPC), sometimes referred to as a protected cell company, is a
company
A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with a specific objective. Company members share a common p ...
which segregates the assets and liabilities of
different classes (or sometimes series) of
shares
In financial markets, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers to all of the shares of an ...
from each other and from the general assets of the SPC.
Segregated portfolio assets comprise assets representing share capital, retained earnings, capital reserves, share premiums and all other assets attributable to or held within the segregated portfolio. The '
protected cell company'' allows for more security and flexibility for international investment structuring.
Separation of liability
Only the assets of each segregated portfolio are available to meet liabilities to creditors in respect of that segregated portfolio; where there are liabilities arising from a matter attributable to a particular segregated portfolio, the creditor may only have recourse to the assets attributable to that segregated portfolio.
Under the laws of some jurisdictions, where the assets of a segregated portfolio are inadequate to meet that portfolio's obligations then a
creditor
A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...
may have recourse to the general assets of the SPC, but not those assets which belong to a different segregated portfolio. An SPC is technically a single legal entity and the segregated portfolios within the SPC will not be separate legal entities which are separate from the SPC, although for
bankruptcy
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...
purposes they are treated as such.
In some jurisdictions, separation of liability is achieved by different statutory mechanisms. For example, Barbados allows the formation of both “Segregated Cell Companies” and “Companies with a Separate Account Structure”. The former are SPCs by another name. The latter separate liabilities by allowing a company to allocate assets and attendant liabilities to any number of separate accounts. In Nevis, similar provisions in the Insurance Ordinance 2004 allow insurers to establish “statutory funds” to which they may allocate the risks of any insured who agrees to such allocation. The assets of a statutory fund are only available to meet liabilities in respect of business allocated to that fund.
The Principality of Liechtenstein regulates the Protected Cell Companies in Art. 243 ff of the Personal and Company Law (PGR). PCC can be entered in the commercial register since January 1, 2015. The relevant preparatory work by the government of the Principality of Liechtenstein has been ongoing since 2013.
Formation
SPCs originated in
Guernsey
Guernsey (; Guernésiais: ''Guernési''; french: Guernesey) is an island in the English Channel off the coast of Normandy that is part of the Bailiwick of Guernsey, a British Crown Dependency.
It is the second largest of the Channel Islands ...
and
Delaware
Delaware ( ) is a state in the Mid-Atlantic region of the United States, bordering Maryland to its south and west; Pennsylvania to its north; and New Jersey and the Atlantic Ocean to its east. The state takes its name from the adjacent Del ...
, but a number of other jurisdictions followed, and they can now be formed in
Bermuda
)
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, the
British Virgin Islands
)
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, song = "Oh, Beautiful Virgin Islands"
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, the
Cayman Islands
The Cayman Islands () is a self-governing British Overseas Territory—the largest by population in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac and Little Cayman, which are located to the ...
,
Anguilla
Anguilla ( ) is a British Overseas Territory in the Caribbean. It is one of the most northerly of the Leeward Islands in the Lesser Antilles, lying east of Puerto Rico and the Virgin Islands and directly north of Saint Martin. The territo ...
,
Ireland
Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...
(the Republic of),
Mauritius
Mauritius ( ; french: Maurice, link=no ; mfe, label=Mauritian Creole, Moris ), officially the Republic of Mauritius, is an island nation in the Indian Ocean about off the southeast coast of the African continent, east of Madagascar. It incl ...
,
Jersey
Jersey ( , ; nrf, Jèrri, label=Jèrriais ), officially the Bailiwick of Jersey (french: Bailliage de Jersey, links=no; Jèrriais: ), is an island country and self-governing Crown Dependencies, Crown Dependency near the coast of north-west F ...
, the
Isle of Man
)
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in Europe ...
,
Malta
Malta ( , , ), officially the Republic of Malta ( mt, Repubblika ta' Malta ), is an island country in the Mediterranean Sea. It consists of an archipelago, between Italy and Libya, and is often considered a part of Southern Europe. It lies ...
,
Bahrain
Bahrain ( ; ; ar, البحرين, al-Bahrayn, locally ), officially the Kingdom of Bahrain, ' is an island country in Western Asia. It is situated on the Persian Gulf, and comprises a small archipelago made up of 50 natural islands and an ...
,
Gibraltar
)
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and Samoa.
Usage
SPCs have several potential functions. They are mostly commonly used in the formation of
collective investment scheme
An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages inc ...
s as
umbrella fund
An umbrella fund is a collective investment scheme that exists as a single legal entity but has several distinct sub-funds which, in effect, are traded as individual investment funds.
This type of arrangement originated in the European investment ...
s and for the formation of
captive insurance
Captive insurance is an alternative to self-insurance in which a parent group or groups create a licensed insurance company to provide coverage for itself. The main purpose of doing so is to avoid using traditional commercial insurance companies, ...
companies (typically a variation of a "rent-a-captive"). They are also sometimes used as asset holding vehicles (characteristically where each portfolio holds a single
ship
A ship is a large watercraft that travels the world's oceans and other sufficiently deep waterways, carrying cargo or passengers, or in support of specialized missions, such as defense, research, and fishing. Ships are generally distinguished ...
or
aircraft
An aircraft is a vehicle that is able to fly by gaining support from the air. It counters the force of gravity by using either static lift or by using the dynamic lift of an airfoil, or in a few cases the downward thrust from jet engines ...
) and they can also potentially be used in
capital markets
A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers to ...
debt issuances.
However, although growing in popularity SPCs still remain something of a niche product. Because of the relative ease of forming multiple
offshore companies
The term "offshore company" or “offshore corporation” is used in at least two distinct and different ways. An offshore company may be a reference to:
* a company, group or sometimes a division thereof, which engages in offshoring business pro ...
in most jurisdictions where SPCs are available for incorporation, and because it is uncertain how the concept of segregated portfolios (and thus no consequential cross-contamination of liabilities) would be treated in an onshore
bankruptcy
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...
or by
credit ratings agencies, many promoters still instead opt for the formation of multiple companies under a single
holding company
A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ...
.
South Africa
Unlike most developed financial markets, there is no legal structure similar to segregated portfolio companies in South Africa. Rather, these companies, known locally as cell captive companies, are companies with different classes of shares, each class being issued to a different cell owner. Separation of assets and liabilities, known as ring-fencing, is achieved through contractual agreements, and given the lack of statutory structure there exists a theoretical risk that creditors may claim dues from cells other than those that are their debtors according to the arrangement agreed to. However, such a precedent has as yet not been set.
In South Africa, there are seven long-term insurers and eleven short-term insurers registered to conduct cell captive insurance business, who manage more than 130 short-term and 50 long-term third-party cell captive insurance arrangements.
[ tp://ftp.fsb.co.za/public/insurance/Discussion_paper_3rd_Party_Cell_and_similar_arrangements.pdf FSB Discussion paper on third-party cell and similar arrangements{dead link, date=May 2018 , bot=InternetArchiveBot , fix-attempted=yes ]
See also
*
Offshore Financial Centres
An offshore financial centre (OFC) is defined as a "country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy."
"Offshore" does not refer ...
*
Special-purpose entity
A special-purpose entity (SPE; or, in Europe and India, special-purpose vehicle/SPV; or, in some cases in each EU jurisdiction, FVC, financial vehicle corporation) is a legal entity (usually a limited company of some type or, sometimes, a limited ...
*
Special-purpose acquisition company
A special purpose acquisition company (SPAC; ), also known as a "blank check company", is a shell corporation listed on a stock exchange with the purpose of acquiring a private company, thus making it public without going through the traditional i ...
*
Special purpose private equity fund
A special purpose private equity fund (SPPEF) also called a special purpose private equity investment fund, is a legal entity, frequently a Limited Liability Company incorporated in the US state of Delaware, but it can be any type of corporation ...
References
Further reading
Nevis Statutory Funds – Risk Segregation of a Different Kind, by Atlas Insurance Management
Offshore finance
Legal entities
Types of business entity
Venture capital firms