Segregated portfolio company
Encyclopedia
A segregated portfolio company (or SPC), sometimes referred to as a protected cell company, is a company
which segregates the assets and liabilities of different classes (or sometimes series) of shares 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.
Under the laws of some jurisdictions, where the assets of a segregated portfolio are inadequate to meet that portfolio's obligations then a creditor
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
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.
and Delaware
, but a number of other jurisdictions followed, and they can now be formed in Bermuda
, the British Virgin Islands
, the Cayman Islands
, Anguilla
, Ireland
(the Republic of), Mauritius
, Jersey
, the Isle of Man
, Malta
, and Gibraltar
.
s as umbrella funds and for the formation of captive insurance
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
or aircraft
, and they can also potentially be used in capital markets 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 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
or by credit ratings agencies
, many promoters still instead opt for the formation of multiple companies under a single holding company
.
Useful Articles=
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
which segregates the assets and liabilities of different classes (or sometimes series) of shares 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.
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
Creditor
A creditor is a party that has a claim to 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 or service to the second party under the assumption that the second party will return an equivalent property or...
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
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. 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.
Formation
SPCs first originated in GuernseyGuernsey
Guernsey, officially the Bailiwick of Guernsey is a British Crown dependency in the English Channel off the coast of Normandy.The Bailiwick, as a governing entity, embraces not only all 10 parishes on the Island of Guernsey, but also the islands of Herm, Jethou, Burhou, and Lihou and their islet...
and Delaware
Delaware
Delaware is a U.S. state located on the Atlantic Coast in the Mid-Atlantic region of the United States. It is bordered to the south and west by Maryland, and to the north by Pennsylvania...
, but a number of other jurisdictions followed, and they can now be formed in Bermuda
Bermuda
Bermuda is a British overseas territory in the North Atlantic Ocean. Located off the east coast of the United States, its nearest landmass is Cape Hatteras, North Carolina, about to the west-northwest. It is about south of Halifax, Nova Scotia, Canada, and northeast of Miami, Florida...
, the British Virgin Islands
British Virgin Islands
The Virgin Islands, often called the British Virgin Islands , is a British overseas territory and overseas territory of the European Union, located in the Caribbean to the east of Puerto Rico. The islands make up part of the Virgin Islands archipelago, the remaining islands constituting the U.S...
, the Cayman Islands
Cayman Islands
The Cayman Islands is a British Overseas Territory and overseas territory of the European Union located in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac, and Little Cayman, located south of Cuba and northwest of Jamaica...
, Anguilla
Anguilla
Anguilla is a British overseas territory and overseas territory of the European Union 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...
, Ireland
Ireland
Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...
(the Republic of), Mauritius
Mauritius
Mauritius , officially the Republic of Mauritius is an island nation off the southeast coast of the African continent in the southwest Indian Ocean, about east of Madagascar...
, Jersey
Jersey
Jersey, officially the Bailiwick of Jersey is a British Crown Dependency off the coast of Normandy, France. As well as the island of Jersey itself, the bailiwick includes two groups of small islands that are no longer permanently inhabited, the Minquiers and Écréhous, and the Pierres de Lecq and...
, the Isle of Man
Isle of Man
The Isle of Man , otherwise known simply as Mann , is a self-governing British Crown Dependency, located in the Irish Sea between the islands of Great Britain and Ireland, within the British Isles. The head of state is Queen Elizabeth II, who holds the title of Lord of Mann. The Lord of Mann is...
, Malta
Malta
Malta , officially known as the Republic of Malta , is a Southern European country consisting of an archipelago situated in the centre of the Mediterranean, south of Sicily, east of Tunisia and north of Libya, with Gibraltar to the west and Alexandria to the east.Malta covers just over in...
, and Gibraltar
Gibraltar
Gibraltar is a British overseas territory located on the southern end of the Iberian Peninsula at the entrance of the Mediterranean. A peninsula with an area of , it has a northern border with Andalusia, Spain. The Rock of Gibraltar is the major landmark of the region...
.
Usage
SPCs have several potential functions. They are mostly commonly used in the formation of collective investment schemeCollective investment scheme
A collective investment scheme is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group...
s as umbrella funds and for the formation of captive insurance
Captive insurance
Captive insurance companies are insurance companies established with the specific objective of financing risks emanating from their parent group or groups, but they sometimes also insure risks of the group's customers as well...
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
Ship
Since the end of the age of sail a ship has been any large buoyant marine vessel. Ships are generally distinguished from boats based on size and cargo or passenger capacity. Ships are used on lakes, seas, and rivers for a variety of activities, such as the transport of people or goods, fishing,...
or aircraft
Aircraft
An aircraft is a vehicle that is able to fly by gaining support from the air, or, in general, the atmosphere of a planet. An aircraft 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.Although...
, and they can also potentially be used in capital markets 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 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
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
or by credit ratings agencies
Credit rating agency
A Credit rating agency is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves...
, many promoters still instead opt for the formation of multiple companies under a single holding company
Holding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
.
Useful Articles=