BVI segregated portfolio company16 May 2012
What is a Segregated Portfolio Company?
A Segregated Portfolio Company ("SPC") is a company formed under the BVI Business Companies Act, 2004 ("Act") that may create one or more segregated portfolios. The assets and liabilities within a segregated portfolio are legally separated from the assets and liabilities of the company’s ordinary account, usually referred to as the "general account" and from other segregated portfolios within the company.
A SPC is a single legal entity with each segregated portfolio having no separate legal personality.
Each segregated portfolio needs to be separately identified or designated and is required to include, in such identification or designation, the words "Segregated Portfolio".
Rights and obligations with respect to segregated portfolios
The directors of a SPC have a duty to establish and maintain procedures to segregate and keep segregated portfolio assets. The assets of a segregated portfolio are only available and used to meet liabilities to creditors of that portfolio. The assets of a portfolio are not available to meet the company’s obligations to general creditors, or those creditors whose claims are not linked to the particular segregated portfolio.
Creditor enforcement rights
The Act includes particular provisions designed to reduce the likelihood of creditors claiming against a particular segregated portfolio with which they have no contractual relationship. The Act implies a provision into every contract, by which the parties agree that the liability will not be paid out of assets other than assets of the portfolio to which the transaction is linked. If any party succeeds in making liable any segregated portfolio assets that are not attributable to that segregated portfolio, that party shall be liable to the company to pay a sum equal to the value of the benefit obtained by him. The Act also provides that any recoveries in breach of the provision are held on trust by the recipient for the company.
Mutual and Hedge Funds
A company that is, or on its incorporation, will be recognised as a professional or private fund or registered as a public fund under the Securities and Investment Business Act, 2010 may be incorporated as a SPC.
In the field of investment funds, SPCs are having a significant effect on enhancing the versatility and efficiency of fund structures. Traditionally, the need to have structures whereby investors could access different trading strategies through a single vehicle led to the development of "multi class" and "umbrella" funds. On the winding up of a multi-class fund, the segregation can break down with distributions being made in the liquidation to creditors generally. There is also the possibility of a creditor attaching an asset without regard to its attribution to a particular class in the fund. Umbrella funds were set up to address the problem of such "cross-class liability", by establishing entirely separate subsidiaries to support each sub-fund.
The segregated portfolio company legislation provides an efficient and affective alternative to these measures, providing a single vehicle that is able to operate in a way similar to a corporate group comprising parent and subsidiaries.