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.

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 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.

Formation

SPCs can generally only be formed in offshore jurisdictions. They first originated in Guernsey 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), Jersey and the Isle of Man.

Usage

SPCs have several potential functions. They are mostly commonly used in the formation of collective investment schemes 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, SPCs remain something of a niche product. Because of the relative ease of forming multipe 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

• Nevis Statutory Funds – Risk Segregation of a Different Kind, by Atlas Insurance Management

See also

• Offshore Financial Centres