The DIFC Authority has announced the public consultation of their Variable Capital Company Regulations ("Draft VCC Regulations"). The proposed regime offers a unique vehicle with flexible share capital structuring for proprietary investment activities, inspired by similar a solution available in Singapore or Mauritius. The public consultation period will end on 24 July 2025.
Overview of the VCC Regulations
The Draft VCC Regulations are particularly designed for a wide range of investment and asset-holding structures, suitable for family assets investment portfolios and other proprietary investment purposes. The VCC regime and aims to add onto the existing protected cell companies and the incorporated cell companies' framework, yet under a non-regulated environment, available to parties other than those providing regulated financial services.
Who Will Benefit from the VCC Regulations
The Draft VCC Regulations are intended to benefit a broad spectrum of stakeholders, including:
- Family Offices and Family Members: The structure allows for the ring-fencing of family assets and the creation of bespoke investment cells tailored to individual family members' objectives.
- Private Equity Funds and Investment Managers: VCCs provide a flexible platform for structuring private equity and other alternative investment funds, including the ability to create multiple segregated or incorporated cells under a single umbrella.
- Registered Persons and Authorised Firms in the DIFC: These entities can use VCCs for proprietary investment activities, asset holding, and structured financing.
- Legal Advisors and Corporate Service Providers: The new regime creates opportunities for advisory and administrative services related to the formation and ongoing management of VCCs.
- Other Stakeholders: Including financial institutions and investors seeking efficient, scalable, and legally robust investment structures.
Key Features of the VCC Regulations
- Structure and Flexibility: A VCC is a private limited company that can be established as a standalone entity or as an umbrella structure with either segregated cells (not separate legal entities) or incorporated cells (each a separate legal entity). However, a VCC cannot have both types of cells simultaneously.
- Share Capital and Distributions: VCCs can issue and redeem shares (including cell shares) at prices linked to the net asset value (NAV) of the company or relevant cell. Distributions can be made from capital, not just profits, providing greater flexibility than traditional companies.
- Qualifying Requirements: To incorporate or continue as a VCC, the entity must be controlled by GCC Persons, Authorised Firms, or DIFC Registered Persons, or be established for specific qualifying purposes (such as holding GCC registrable assets, aviation, maritime, intellectual property, crowdfunding, structured financing, or secondaries structures).
- Asset Segregation: The VCC Regulations distinguish between cellular assets (attributable to specific cells) and non-cellular assets (attributable to the VCC as a whole), ensuring robust ring-fencing and creditor protection.
- Corporate Actions and Restructuring: The VCC Regulations provide detailed procedures for the creation, merger, transfer, and conversion of cells, as well as for the conversion of VCCs into other company types and vice versa.
- Governance and Officer Duties: Officers of a VCC have explicit duties to maintain the segregation of assets and to inform counterparties of the nature of the entity and the limitations of recourse to assets, with personal liability for breaches in certain circumstances.
- Creditor and Shareholder Protections: The VCC Regulations embed creditor rights, including the right to object to certain restructurings, and set out the processes for dispute resolution and court intervention.
- Winding Up and Insolvency: VCCs cannot be wound up until all incorporated cells are dealt with, and the DIFC Insolvency Law applies with necessary adaptations.
Final Remarks
The key areas that the DIFC have indicated where the feedback would be particularly valuable include the overall suitability and potential consequences of introducing VCCs in the DIFC, the scope and appropriateness of qualifying requirements and eligible applicants, the adequacy of asset segregation, creditor and shareholder protections, and procedures for corporate actions, and officer liability.
The DIFC would welcome comments from the public by 24th July.
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.
