As of 8 November 2021 (with certain changes that came into operation on 31 December 2021), the Segregated Accounts Companies Amendment Act 2021 introduced changes to the Segregated Accounts Companies Act 2000 (as amended) (the "SAC Act"), the most notable of which is the expansion of the application of the SAC Act to include limited liability companies (an "LLC") formed under the Limited Liability Company Act 2016 (the "LLC Act"). Previously, registration of a company to benefit from statutory segregation of assets or liabilities of a segregated account (an "SAC") was only available to Bermuda companies limited by shares.
Also of note are the changes to the requirements related to the appointment of a segregated account representative ("SAC Rep"), which in almost all cases now require the SAC Rep to be a 'regulated person'.
Protection and Segregation of Assets
SACs have proven to be resilient structures for the segregation of assets and liabilities and protection from creditors while being simple to use and cost-effective to operate. Each 'segregated account' is a separate and distinct account pertaining to an identified pool of assets and liabilities which are legally separated from the general account of the SAC and other segregated accounts. Functionally, this provides certainty that any asset that is linked to a particular segregated account may not be used to satisfy any liabilities of the general account of the company or of other segregated accounts.
Flexibility and Limitation of Liability
A Bermuda LLC can be understood as a hybrid entity combining characteristics of a limited partnership and a company limited by shares. The central framework of the LLC Act closely mirrors the Delaware LLC legislation with the result that Bermuda LLCs will be quite familiar in look and operation to Delaware LLCs. There are many advantages to operating a business via an LLC, including added protection for managers and members by providing a statutory limitation on personal liability. LLCs also provide the opportunity for a customised business structure and governance rules via the organisational LLC agreement. This importation of the principle of 'freedom of contract' with respect to the LLC agreement gives significant flexibility to accommodate the specific needs and preferences of a Bermuda LLC.
Combining the Benefits
For practical purposes, adding the ability to statutorily segregate accounts within Bermuda LLCs means that Bermuda now offers a product that is analogous to a Delaware Series LLC, an entity structure that is very familiar to many clients, particularly in the United States. Clients who are used to Delaware Series LLCs will be able to navigate the operation of Bermuda LLCs registered as SACs with ease, encountering familiar vocabulary and legal constructs. We therefore expect to see more LLCs registering as SACs, and we welcome the further flexibility and protection these structures offer clients in Bermuda.
Segregated Account Representative
The SAC Act requires each SAC company to appoint an SAC Rep in Bermuda who is a 'regulated person', with limited exceptions. In the case of (i) an SAC company that is engaged in insurance business; (ii) an SAC company that is an anti-money laundering and anti-terrorist financing ("AML/AFT") regulated financial institution or is otherwise required to comply with applicable AML/ATF regulations; or (iii) any other category of SAC company as Bermuda's Minister of Finance (the "Minister") may determine, the SAC Rep must be a regulated person or a person approved by the Minister as an SAC Rep. A "regulated person" means a person over whom a supervisory authority has regulatory authority.
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