Cayman Islands: Segregated Portfolio Companies

Last Updated: 4 November 2008


A significant amendment was made to the Companies Law (the "Law") which extended the scope of the Segregated Portfolio Companies provisions in Part XIV of the Law.

The Law as amended permits any exempted company to apply to the Registrar of Companies to be registered as an exempted segregated portfolio company ("SPC"). These provisions were previously restricted to apply only to certain insurance companies. Exempted companies regulated by the Cayman Islands Monetary Authority ("CIMA") also require the permission of the CIMA to register as an SPC.

Once registered, exempted companies can operate segregated portfolios with the benefit of statutory segregation of assets and liabilities between portfolios. The principal advantage of an SPC over a standard exempted company is to protect the assets of one account from the liabilities of other accounts.


These provisions created a landmark opportunity for the introduction of innovative legal structures across a wide range of business areas. Mutual funds in particular have benefited from the use of SPCs.

Standard mutual fund structures such as multi-class hedge funds, umbrella funds and master-feeder structures benefit through the ability to set up a statutory "ring-fence" to protect against cross liability issues between assets and liabilities of the segregated portfolios within an SPC. Furthermore, the use of an SPC facilitates a more streamlined offering structure for certain mutual funds.

This closely follows the use of SPCs by insurers where individual insurance or product lines are segregated in different segregated portfolios thus protecting them from losses arising from the other categories of business written by the insurer.

Examples of other uses include multiple tranche debt issue vehicles, property development companies, ship or other fleet owning companies, securitisation and derivative transactions.

The advantages over traditional methods of creating legal divisions between accounts (such as setting up underlying special purpose vehicles and negotiating limited recourse provisions with third parties) include reduced complexity and possible cost savings.





SPC application fee



SPC annual fee



Fee for each additional segregated portfolio

(Maximum of $1,500.00)

(Maximum of $1,829.00)

Exempted company annual fees




Multiple portfolios

An SPC may create one or more segregated portfolios in order to segregate its assets and liabilities. Please note that an annual notice stating the name of each segregated portfolio must be filed (s233(5)).


A segregated portfolio company must include the letters "SPC" or the words "Segregated Portfolio Company" in its name (s234).

No separate legal personality

Although a segregated portfolio must be separately identified it will not be a separate legal entity from the company (s235 (2)).

The Law provides that an SPC has the capacity to enter transactions "for and on behalf" of one or more segregated portfolios. The SPC must identify the relevant segregated portfolio(s) and state that it is acting "on behalf of" the particular named segregated portfolio(s). The capacity in which the SPC contracts and the name(s) of the relevant segregated portfolio(s) must be set out in writing in the relevant transaction documentation.

It is important to note that directors will incur personal liability if they fail to satisfy these requirements. This liability is subject to a right of indemnity against the particular segregated portfolio's assets provided that the directors were not fraudulent, negligent, reckless or acting in bad faith (s237). A director may also be relieved of liability by the court where he was not aware of the circumstances giving rise to the liability or expressly objected and exercised his rights as a director to try to prevent the matter in question occurring.

Segregated assets

Assets of the SPC are either segregated portfolio assets or general assets. The Directors of an SPC have a duty to establish and maintain the segregation of each segregated portfolio's assets from those of other segregated portfolios and also the general assets of the SPC (s238(6)).

Issue of shares

Shares may be issued in respect of a particular segregated portfolio, the proceeds of which are included in the assets of such segregated portfolio and which may carry the right to distributions from that segregated portfolio.

Rights of creditors

A creditor will only have recourse to assets from segregated portfolios with which it has contracted and (thereafter) the general assets of the SPC (s239(a)). Creditors will have no recourse to the assets of other segregated portfolios of the SPC which are protected under the Law (s239(b)).

Liabilities owed to third parties

Liabilities to a person arising from a matter imposed on, or attributable to, a particular segregated portfolio, only entitle that person to have recourse to that particular segregated portfolio in the first instance and then to the general assets of the SPC (s240(1)(a)). Such person has no recourse to the segregated portfolio assets of any other segregated portfolio (s240(1)(b)).


Making a receivership order

The Grand Court of the Cayman Islands (the "Grand Court")may make a receivership order, and appoint a receiver over a segregated portfolio's assets, if:

1. upon the application of (see s244):

  1. the SPC itself;
  2. its directors;
  3. any creditor of a specific segregated portfolio;
  4. the holder of any segregated portfolio shares; or
  5. CIMA (if the SPC carries on a regulated business); and

2. the Grand Court of the Cayman Islands is satisfied that:

  1. the assets attributable to any particular segregated portfolio are or are likely to be insufficient to discharge the claims of the creditors of that segregated portfolio; or
  2. there is a desire for there to be an orderly winding down of the business attributable to the specific segregated portfolio and it is proposed to distribute those assets to those entitled to have recourse to the segregated portfolio (s243).

Effect of receiving order

The receiver is deemed to be the agent of the SPC and does not incur personal liability unless he is fraudulent, reckless, negligent or he acts in bad faith (s245(3)). The making of a receivership order by the Grand Court creates a stay of proceedings against the SPC in relation to the segregated portfolio in respect of which the receivership order is made. No suit, action or other proceedings may be taken or instituted against that segregated portfolio's assets without the leave of the Grand Court (s245(5)). Further, once a receivership order has been made, the powers of the SPC's directors cease in respect of the business of or attributable to the specific segregated portfolio's assets (s245(6)(a)).

Effect of liquidation on a receivership

The court cannot make a receivership order if the SPC is in liquidation and any receivership order made ceases to be of effect upon the commencement of any liquidation of the SPC (s243(4)). An SPC may not commence a voluntary winding up without the prior leave of the Grand Court if any of its segregated portfolios are the subject of a receivership order (s243(5)). The remuneration and expenses of a receiver are met from the assets of the specific segregated portfolio in respect of which the receiver was appointed in priority to all other claims (S247).

Winding up or Liquidation

Save for a voluntary winding up requiring leave of the Grand Court if a segregated portfolio is in receivership, an SPC may be wound up or liquidated in the same manner as any other company incorporated under the Law. However, any liquidator appointed must continue to maintain procedures to segregate and keep segregated particular portfolio assets from other portfolio assets and the general assets of the SPC (s242(1)). Further, he must only discharge specific segregated portfolio creditors' claims from the assets of the specific segregated portfolio. If the creditor has only a claim against the general assets of the Company (ie, assets that are not part of a segregated portfolio) he must pay that general creditor out of the general assets only.


When dealing with an SPC a third party should clearly establish which segregated portfolio of the SPC it is dealing with (and therefore which of the relevant segregated assets it has recourse against).


The concept of statutory segregation of accounts is now well developed and recognised in jurisdictions such as Delaware, Guernsey and Bermuda. However, it may be prudent to seek legal advice from an insolvency practitioner in those jurisdictions where a segregated portfolio's assets are located outside the Cayman Islands. Furthermore, to reinforce the legal position it is advisable that Cayman Islands Law be selected to govern contracts to which an SPC is a party and to ensure that such contracts provide that the Cayman Islands courts shall have jurisdiction to determine any disputes.

Cayman Islands
Jonathan Tonge, Partner

David Whittome, Partner

Heather Bestwick, Partner

British Virgin Islands
Richard May

Hong Kong
Philip Millward, Partner

Rod Palmer, Partner

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.

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