Segregated Portfolio Companies as Mutual Funds

Segregated Portfolio Companies as Mutual Funds

Introduction

The laws of each of the British Virgin Islands (BVI) and the Cayman Islands permit, within a single company, the segregation of assets and liabilities amongst various "portfolios" in a way which binds third parties as a matter of the respective laws.

Notwithstanding the segregation of assets and liabilities within portfolios, the Segregated Portfolio Company ("SPC") is a single legal entity and any segregated portfolio of, or within, an SPC does not constitute a legal entity separate from the SPC itself. This means, for example, that a portfolio cannot buy shares in another portfolio except through a third party.

Why choose an SPC?

The segregation of assets and liabilities between various separate "pools" is already possible by the adoption of a group company structure comprising a number of different companies. Furthermore, it has always been possible to segregate assets and liabilities within a company on a consensual basis relying on limited recourse language in relation to creditors, and asset allocation provisions in the memorandum and articles of association in relation to shareholders. So what are the benefits of adopting an SPC?

Cost - there is only one set of registration and annual fees (though these are higher than for a non-SPC recognised or registered mutual fund - see below). Simplicity - it is only necessary to administer one corporate entity, rather than several. There is a significant diminution of potential conflicts of interest for directors in respect of separate portfolios in a way which would not be possible if those directors were directors of separate companies. The SPC regime, whilst using one corporate entity, binds non-consensual third parties as well as consensual third parties under the laws. The SPC regime treats...