LEGAL STRUCTURE
A segregated portfolio company (“SPC”) is a single legal entity that has the power to create separate and distinct “segregated portfolios”. Each segregated portfolio may, but is not required to, have one or more classes or series of shares attributable to a segregated portfolio. The proceeds of shares issued outside a segregated portfolio will fall within a SPC’s general assets.

A segregated portfolio company must include in its name the letters “SPC” or the words “Segregated Portfolio Company”. Each segregated portfolio must include in such identification or designation the words “Segregated Portfolio” or “SP” or “S.P.”.

A segregated portfolio of a SPC cannot contract in its own name. It is the SPC which will be the contracting party, for the account of the relevant segregated portfolio which must be separately identified or designated.

USES
When the concept of SPCs was first introduced in the Cayman Islands, only insurers could be established as SPCs. Today, SPCs can be used for many businesses.

Because a SPC is a single legal entity for tax purposes, it can be seen as a solution for entities caught by controlled foreign corporation rules of their jurisdiction. Beyond the funds and captive/life insurance markets, SPCs are popular as asset-holding vehicles and segregated investment vehicles for high net worth individuals.

LEGAL SEGREGATION & POSITION OF CREDITORS
Assets and liabilities of segregated portfolios in a SPC are, by law, segregated from those of other segregated portfolios and such segregated portfolio assets are not available to creditors of other segregated portfolios in an insolvency.

The assets of a segregated portfolio comprise:
• assets representing the share capital, profits, retained earnings, capital reserves and share premiums attributable to the segregated portfolio; and
• all other assets attributable to or held within the segregated portfolio.

RECOURSE
Liabilities attributable to a particular segregated portfolio may only be satisfied from:
• firstly, the segregated portfolio assets attributable to such segregated portfolio; and

• secondly, unless specifically prohibited by the articles of association, the SPC’s general assets, to the extent that the segregated portfolio assets attributable to such segregated portfolio are insufficient to satisfy the liability, and to the extent that the SPC’s general assets exceed any minimum capital amounts lawfully required by a regulatory body in the Islands.

Liabilities not attributable to a particular segregated portfolio may only be satisfied from the SPC’s general assets.

DIRECTORS’ DUTIES
In addition to the general duties of a director, it is the duty of the directors of a SPC to establish and maintain (or cause to be established and maintained) procedures:
• to segregate and separately identify, segregated portfolio assets from general assets;

• to segregate and separately identify, segregated portfolio assets of each segregated portfolio from segregated portfolio assets of any other segregated portfolio; and

• to ensure that assets and liabilities are not transferred between segregated portfolios or between a segregated portfolio and the general assets otherwise than at full value.

DIVIDENDS
A SPC may pay a dividend in respect of segregated portfolio shares by reference only to the segregated portfolio assets and liabilities, or the profits, attributable to the relevant segregated portfolio. Subject to anything to the contrary in the Articles of Association of the SPC, dividends may be declared whether or not a dividend is declared on any other class or series of segregated portfolio shares or any other shares.

CONVERSION FROM EXEMPTED NON-SPC TO SPC
An existing company may propose to convert from an exempted company into a SPC. In order for the conversion to be effective, the company is required to file with the Registrar of Companies a declaration made by at least two directors (referring to, among other things, consent having been granted by creditors), and to pass a special resolution of shareholders authorising the transfer of assets and liabilities into segregated portfolios. Where the company is licensed by the Cayman Islands Monetary Authority (“CIMA”) it must obtain CIMA’s written consent to the registration of the SPC.

WINDING UP
An application for a receivership order in respect of a segregated portfolio of a segregated portfolio company may be made by:
• the SPC;
• the directors of the SPC;
• any creditor of the SPC in respect of that segregated portfolio;

• any holder of segregated portfolio shares in respect of that segregated portfolio; or

• the Cayman Islands Monetary Authority where the SPC is regulated by the Authority.

TERMINATION OF SEGREGATED PORTFOLIO
Where a segregated portfolio has no assets or liabilities attributable to it, the SPC may terminate the segregated portfolio, by resolution of its directors (or as otherwise provided for in its articles of association).

A SPC may reinstate a segregated portfolio which has been terminated, by resolution of its directors (or as otherwise provided for in its articles of association).

FOR MORE INFORMATION,
PLEASE CONTACT:
STEPHEN NELSON
SENIOR ASSOCIATE // CAYMAN
t: +1 345 914 9606
e: [email protected]
LEON SANTOS
GROUP PARTNER // SINGAPORE
t: +65 6408 3397
e: [email protected]
MARK RAWLINS
GROUP PARTNER // JERSEY
t: +44 (0)1534 601 750
e: [email protected]

SOURCE: http://www.collascrill.com/media/151104/10269_cc_lit_cmn_cayman_islands_spc_structures_d4.pdf