In the recent decision of In the Matter of Holt Fund SPC, the Cayman Islands Grand Court confirmed for the first time that it has jurisdiction to wind up a segregated portfolio company (SPC) based on the insolvency of one or more (but not all) of its segregated portfolios, and accordingly restructuring officers could be appointed in relation to those segregated portfolios.
The decision concerns an unopposed application to appoint joint restructuring officers under the Cayman Islands dedicated restructuring regime in relation to two segregated portfolios of a SPC. Despite his initial concern, Justice Kawaley reviewed the relevant statutory provisions and case law and concluded that the Court does have jurisdiction to wind up a SPC where some but not all of its segregated portfolios are insolvent:
- Whilst it is unclear from the statutory provisions whether a SPC could be viewed as unable to pay its debts if one or more of its segregated portfolios was insolvent, the legislation contained no express modification of the standard insolvency test for SPCs (in contrast, the Bermudian legislation does provide that assets and liabilities linked to segregated accounts shall not be taken into account).
- Also, there are express statutory provisions stipulating that when a SPC is wound up, the liquidator must respect the statutory separation of the assets and liabilities of the segregated portfolios.
- Further, the recent decisions of Re Coinful and Performance
Insurance Company SPC (in Official Liquidation) support the
propositions that:
- the insolvency of one or more of segregated portfolios could be attributed to a SPC for the purpose of exercising the Court's winding-up jurisdiction; and
- official liquidators could be appointed to deal with assets and liabilities of specific segregated portfolios.
- Lastly, the Court agrees with the contention that a SPC as the sole entity with legal personality was liable for the debts of its segregated portfolios was consistent with the commercial reality in the circumstances of this particular case.
In view of the above, the Court appointed joint restructuring officers to the two segregated portfolios of the SPC.
As noted by the Grand Court, this decision highlights the flexibility of the SPC regime in the Cayman Islands compared with both traditional companies and corresponding segregated portfolio regimes elsewhere.
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.
