Cayman Islands: SPCS - To Convert Or Not To Convert?

Last Updated: 12 February 2007
Article by Paul Scrivener

Under Cayman's progressive protected cell legislation it has been possible for some time now to convert an existing captive into a segregated portfolio company. Paul Scrivener, head of the Insurance Group at Solomon Harris reviews why this might be done and the steps involved.

The protected cell concept is relatively straightforward. A particular type of company, known in the Cayman Islands as a segregated portfolio company or SPC (different names are used elsewhere) is set up which is able to create one or more cells in order to ring-fence pools of assets and liabilities within the company. Generally, a creditor dealing with one particular cell can only have recourse to the assets of that cell and is denied recourse to the assets of other cells and, depending on how the company is structured, may be denied access to the core assets of the company ie assets which do not relate to any particular cell. The Cayman Islands insurance industry has for the most part embraced the vehicle and particularly in the rent-a-captive arena.

When Cayman first enacted its protected cell legislation in 1998 it was only possible to incorporate a brand new SPC and the law did not allow for an existing captive to transform itself into an SPC. This was somewhat limiting as there were those who had an existing captive and saw the advantages of an SPC structure but it was simply impracticable or cost prohibitive for them to abandon their existing captive in favour of a brand new SPC. In response to this the legislation was subsequently amended to allow the conversion of an existing vehicle into an SPC. It would be wrong to say that this has led to a stampede of conversions but there has certainly been a good level of interest in converting and a number of conversions have taken place.

For any captive considering a conversion, the first thing to assess is whether there is a good business case for it. This is fundamental and whilst obvious sometimes the issue is not fully explored. There is often a misunderstanding about what an SPC is and what it can offer and some captive owners may be led down the conversion route on the basis of recommendations from advisers or service providers that whilst well-meaning may not have been thought through in the context of the particular captive's circumstances and requirements.

So, when would a captive consider converting to an SPC? The obvious candidate would be a rent-a-captive set up prior to the protected cell legislation being introduced. Historically, rent-a-captives operated using separate accounts for the clients but this did not achieve legal segregation of the programs because at the end of the day, in the absence of non-recourse covenants, all assets of the rent-a-captive were available to any creditor (generally, of course, a policyholder under a program) and so there was no ring-fencing of the assets of each program. In contrast, the SPC enjoys statutory ring-fencing of assets between cells and therefore enables each program to be legally segregated from all other programs within the rent-a-captive. In most cases, whilst obviously not perfect in every respect, an SPC will be the optimum structure for any rent-a-captive and therefore conversion to an SPC is definitely worth considering by most rent-a-captives.

So, have conversions tended to be limited to rent-a-captives? Somewhat surprisingly, the answer is no. We have also seen examples in the healthcare arena where some healthcare systems with a limited number of existing programs have seen the opportunity to develop additional "non in-house" programs, say, for self-employed physicians or even other regional healthcare systems. In those circumstances, the healthcare system seems to have felt much more comfortable placing the new programs within separate cells in an SPC structure. However, from a commercial point of view, one does wonder whether if "push came to shove" and one of the unrelated cells became insolvent, whatever the strict legal position might be, how easy it would be for the healthcare system which owns the SPC to simply walk away from the liabilities.

How difficult is the conversion process? It is relatively straight-forward and would typically not take more than 4 to 6 weeks. As you would expect, the written consent of the Cayman Islands Monetary Authority ("CIMA") will be required and this will be applied for by the captive manager. CIMA will want to have a clear understanding of how the new structure will operate and will require an updated business plan in relation to the core and each of the new cells to be set up. Having obtained CIMA approval, it will be necessary for the voting shareholders of the captive to pass a special resolution authorizing the transfer of the captive's assets and liabilities into cells.

Potentially, the most time-consuming part of the process is the need to obtain creditor consents. The legislation requires that each creditor of the captive must consent in writing to the transfer of assets and liabilities into cells or, as an alternative to obtaining consent from every single creditor, adequate notice may be given to all creditors and consent obtained from ninety-five per cent of those creditors by value. Adequate notice means notice in writing to each creditor having a claim against the captive exceeding CI$1,000 (US$1,220). In most cases, the creditors of a captive will comprise policyholders with outstanding claims and professional services providers with outstanding fees. The more problematic issue is whether contingent or prospective creditors have to be taken into account and this has not yet been considered by the Cayman courts in the context of the SPC legislation. However, in light of the recent Cayman Islands case of Brac Construction Ltd v. Broome & Broome in relation to the standing of a creditor to issue winding up proceedings, there is an argument for saying that a contingent or prospective creditor claiming an unspecified sum from the captive would not need to be involved in the creditor consent process. However, this is not settled law and therefore a cautious approach should be adopted.

In some instances, because of timing constraints or administrative issues, it may be a problem to obtain creditor consents. If that is the case and the SPC is being established to separate an existing program from new programs which are being set up from scratch, one possibility is to retain the existing program in the core of the SPC rather than transfer that program into its own cell and establish cells only for the new programs being created. In this way, no assets and liabilities of the captive are being transferred into cells and therefore the creditor consent process is not required. This makes sense because creditors of the existing program are not prejudiced by the conversion because the assets available to them prior to conversion still remain available to them in just the same way after conversion.

The principal legal document required by the Cayman Islands Companies Registry to effect the conversion will be a declaration signed by at least two of the captive's directors. The declaration must deal with a number of matters: a statement of the current assets and liabilities of the captive (current means not more than 3 months old), details of any material changes in those assets and liabilities since the relevant balance sheet date, confirmation that the SPC into which the captive wishes to convert intends to operate and details of the assets and liabilities which the captive proposes to transfer into cells, confirmation as to solvency of the captive as of the date of conversion and that the creditor approval process has been completed. There must also be attached to the declaration a copy of the special resolution of the captive authorizing the transfer of assets and liabilities into cells together with a copy of the CIMA approval of the conversion. As part of the conversion process the captive will also adopt new articles of association suitable for an SPC as well as restructuring its share capital.

The relevant provisions of the SPC legislation strike a careful balance between the need to facilitate conversion wherever it is commercially appropriate and the need to protect both the shareholders and creditors of the captive being converted. In view of the increasing importance of the SPC to the Cayman Islands insurance industry (as at 2 January 2007 there were 117 Cayman SPCs with total premiums in excess of US$573 million), gazing into the crystal ball, it seems likely there will be an ever increasing number of captives converting to the SPC structure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.