A segregated portfolio company (or SPC), sometimes referred to as a protected cell company, is a

company A company, abbreviated as co., is a Legal personality, legal entity representing an association of legal people, whether Natural person, natural, Juridical person, juridical or a mixture of both, with a specific objective. Company members ...

which segregates the assets and liabilities of different classes (or sometimes series) of

shares In financial markets, a share (sometimes referred to as stock or equity) is a unit of equity ownership in the capital stock of a corporation. It can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Sha ...

from each other and from the general assets of the SPC. Segregated portfolio assets comprise assets representing share capital, retained earnings, capital reserves, share premiums and all other assets attributable to or held within the segregated portfolio.

Separation of liability

Only the assets of each segregated portfolio are available to meet liabilities to creditors in respect of that segregated portfolio; where there are liabilities arising from a matter attributable to a particular segregated portfolio, the creditor may only have recourse to the assets attributable to that segregated portfolio. Under the laws of some jurisdictions, where the assets of a segregated portfolio are inadequate to meet that portfolio's obligations then a

creditor A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some propert ...

may have recourse to the general assets of the SPC, but not those assets which belong to a different segregated portfolio. An SPC is technically a single legal entity and the segregated portfolios within the SPC will not be separate legal entities which are separate from the SPC, although for

bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the deb ...

purposes they are treated as such. The Principality of Liechtenstein regulates the Protected Cell Companies in Art. 243 ff of the Personal and Company Law (PGR). PCC can be entered in the commercial register since January 1, 2015. The relevant preparatory work by the government of the Principality of Liechtenstein has been ongoing since 2013.

Formation

SPCs originated in

Guernsey Guernsey ( ; Guernésiais: ''Guernési''; ) is the second-largest island in the Channel Islands, located west of the Cotentin Peninsula, Normandy. It is the largest island in the Bailiwick of Guernsey, which includes five other inhabited isl ...

and

Delaware Delaware ( ) is a U.S. state, state in the Mid-Atlantic (United States), Mid-Atlantic and South Atlantic states, South Atlantic regions of the United States. It borders Maryland to its south and west, Pennsylvania to its north, New Jersey ...

, but a number of other jurisdictions followed, and they can now be formed in

Bermuda Bermuda is a British Overseas Territories, British Overseas Territory in the Atlantic Ocean, North Atlantic Ocean. The closest land outside the territory is in the American state of North Carolina, about to the west-northwest. Bermuda is an ...

, the

British Virgin Islands The British Virgin Islands (BVI), officially the Virgin Islands, are a British Overseas Territories, British Overseas Territory in the Caribbean, to the east of Puerto Rico and the United States Virgin Islands, US Virgin Islands and north-west ...

, the

Cayman Islands The Cayman Islands () is a self-governing British Overseas Territories, British Overseas Territory, and the largest by population. The territory comprises the three islands of Grand Cayman, Cayman Brac and Little Cayman, which are located so ...

Anguilla Anguilla is a British Overseas Territories, British Overseas Territory in the Caribbean. It is one of the most northerly of the Leeward Islands in the Lesser Antilles, lying east of Puerto Rico and the Virgin Islands and directly north of Sa ...

Ireland Ireland (, ; ; Ulster Scots dialect, Ulster-Scots: ) is an island in the North Atlantic Ocean, in Northwestern Europe. Geopolitically, the island is divided between the Republic of Ireland (officially Names of the Irish state, named Irelan ...

(the Republic of),

Mauritius Mauritius, officially the Republic of Mauritius, is an island country in the Indian Ocean, about off the southeastern coast of East Africa, east of Madagascar. It includes the main island (also called Mauritius), as well as Rodrigues, Ag ...

Jersey Jersey ( ; ), officially the Bailiwick of Jersey, is an autonomous and self-governing island territory of the British Islands. Although as a British Crown Dependency it is not a sovereign state, it has its own distinguishing civil and gov ...

, the

Isle of Man The Isle of Man ( , also ), or Mann ( ), is a self-governing British Crown Dependency in the Irish Sea, between Great Britain and Ireland. As head of state, Charles III holds the title Lord of Mann and is represented by a Lieutenant Govern ...

Malta Malta, officially the Republic of Malta, is an island country in Southern Europe located in the Mediterranean Sea, between Sicily and North Africa. It consists of an archipelago south of Italy, east of Tunisia, and north of Libya. The two ...

Bahrain Bahrain, officially the Kingdom of Bahrain, is an island country in West Asia. Situated on the Persian Gulf, it comprises a small archipelago of 50 natural islands and an additional 33 artificial islands, centered on Bahrain Island, which mak ...

Gibraltar Gibraltar ( , ) is a British Overseas Territories, British Overseas Territory and British overseas cities, city located at the southern tip of the Iberian Peninsula, on the Bay of Gibraltar, near the exit of the Mediterranean Sea into the A ...

and Samoa.

Usage

SPCs have several potential functions. They are mostly commonly used in the formation of

collective investment scheme An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These ad ...

s as umbrella funds and for the formation of

captive insurance Captive insurance is an alternative to self-insurance in which insured parties establish a licensed insurance company for their own use and benefit. The company focuses its service on the specific risks of the insureds and is incentivized to pric ...

companies (typically a variation of a "rent-a-captive"). They are also sometimes used as asset holding vehicles (characteristically where each portfolio holds a single

ship A ship is a large watercraft, vessel that travels the world's oceans and other Waterway, navigable waterways, carrying cargo or passengers, or in support of specialized missions, such as defense, research and fishing. Ships are generally disti ...

aircraft An aircraft ( aircraft) is a vehicle that is able to flight, fly by gaining support from the Atmosphere of Earth, air. It counters the force of gravity by using either Buoyancy, static lift or the Lift (force), dynamic lift of an airfoil, or, i ...

) and they can also potentially be used in

capital markets A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers t ...

debt issuances. Although growing in popularity, SPCs still remain a niche risk transfer tool. Because of the relative ease of forming multiple

offshore companies The term "offshore company" or "offshore corporation" is used in at least two distinct and different ways. An offshore company may be a reference to: * a company, Corporate group, group or sometimes a division thereof, which engages in offshorin ...

in most jurisdictions where SPCs are available for incorporation, and because it is uncertain how the concept of segregated portfolios (and thus no consequential cross-contamination of liabilities) would be treated in an onshore

or by credit ratings agencies, many promoters still instead opt for the formation of multiple companies under a single

holding company A holding company is a company whose primary business is holding a controlling interest in the Security (finance), securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own Share ...

Alternatives

"Segregated Cell Companies" and "Companies with a Separate Account Structure"

In some jurisdictions, separation of liability is achieved by different statutory mechanisms. For example, Barbados allows the formation of both "Segregated Cell Companies" and "Companies with a Separate Account Structure". The former are SPCs by another name. The latter separate liabilities by allowing a company to allocate assets and attendant liabilities to any number of separate accounts. In Nevis, similar provisions in the Insurance Ordinance 2004 allow insurers to establish "statutory funds" to which they may allocate the risks of any insured who agrees to such allocation. The assets of a statutory fund are only available to meet liabilities in respect of business allocated to that fund.

United States series LLCs

Many U.S. states have enacted a conceptually-similar corporate law mechanism, the

series LLC A series limited liability company, commonly known as a series LLC, protected cell company, segregated account company, or segregated portfolio company, and sometimes abbreviated as SLLC, is a form of a limited liability company that provides lia ...

South Africa cell captive companies

Unlike most developed financial markets, there is no legal structure similar to segregated portfolio companies in South Africa. Rather, these companies, known locally as cell captive companies, are companies with different classes of shares, each class being issued to a different cell owner. Separation of assets and liabilities, known as ring-fencing, is achieved through contractual agreements, and given the lack of statutory structure there exists a theoretical risk that creditors may claim dues from cells other than those that are their debtors according to the arrangement agreed to. However, such a precedent has as yet not been set. In South Africa, there are seven long-term insurers and eleven short-term insurers registered to conduct cell captive insurance business, who manage more than 130 short-term and 50 long-term third-party cell captive insurance arrangements. tp://ftp.fsb.co.za/public/insurance/Discussion_paper_3rd_Party_Cell_and_similar_arrangements.pdf FSB Discussion paper on third-party cell and similar arrangements/ref>

Separation of liability

Formation

Usage

Alternatives

"Segregated Cell Companies" and "Companies with a Separate Account Structure"

United States series LLCs

South Africa cell captive companies

See also

References

Further reading