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Guide to British Virgin Islands Segregated Portfolio Companies
This guide provides an introduction to British Virgin Islands (the “BVI”) Segregated Portfolio Companies which are formed under the BVI Business Companies Act, 2004 (the “Act”), as amended by the BVI Business Companies (Amendment) Act, 2018, the Segregated Portfolio Companies (BVI Business Company) Regulations, 2018, theSegregated Portfolio Companies (Mutual Funds) Regulations, 2018, and the Segregated Portfolio Companies (Insurance) Regulations, 2018.
1. Introduction
The Segregated Portfolio Company (“SPC”) is a single legal entity within which various segregated portfolios may be established. The assets and liabilities of each segregated portfolio are legally separate from those of the other segregated portfolios. It should be noted however, that each segregated portfolio is not a separate legal entity.
2. Key features of an SPC
The assets of an SPC are either classed as segregated portfolio assets (assets of each individual segregated portfolio) or general assets of the company (assets which are not apportioned to any individual portfolios).
Segregated portfolio assets shall only be available and used to meet liabilities to the creditors of the SPC who are creditors in respect of that segregated portfolio and who shall thereby be entitled to have recourse to that segregated portfolio’s assets. An individual segregated portfolio’s assets shall not be available or used to meet liabilities to creditors of the SPC who are not creditors in respect of that segregated portfolio. Should the assets of the individual portfolio be insufficient to satisfy the liability, the creditor may have access to the general assets of the SPC. Thereafter, the creditor will not have access to the assets of any other segregated portfolios of the SPC.
An SPC may issue shares in respect of an individual segregated portfolio (“Segregated Portfolio Shares”). The proceeds of such a share issue shall be attributed to the individual segregated portfolio’s assets.
Segregated Portfolio Shares may be issued in one or more classes and a class of Segregated Portfolio Shares may be issued in one or more series. Where shares are issued, other than Segregated Portfolio Shares, the proceeds of issue shall be included in the company’s general assets.
An SPC may pay a dividend in respect of Segregated Portfolio Shares. Any dividend may be made by reference only to the segregated portfolio assets and liabilities attributable to the segregated portfolio in respect of which the Segregated Portfolio Shares were issued. This is discussed in further detail at paragraph 7 below.
As the segregated portfolios are not separate legal entities, the SPC executes all agreements or contracts for and on behalf of the segregated portfolio(s). When entering into an agreement the SPC must indicate that the execution is for the account of the relevant segregated portfolio(s). It should be noted that, unlike some other jurisdictions, under BVI law there is no personal liability attached to directors for failure to do so.
3. Forming an SPC
An SPC may be formed either by incorporating a new company as an SPC or, if the company has already been incorporated, by re-registration with the BVI Registrar as an SPC.
On the coming into force of the BVI Business Companies (Amendment) Act, 2018 (“Amendment Act”) on 1 October 2018 the Commission may approve an application for an SPC where the company is, or on incorporation will be:
(a) licensed as an insurer under the Insurance Act, 1994;
(b) recognised as a professional or private fund or registered as a public fund under the Securities and Investments Business Act, 2010 (“SIBA”);
(c) not licensed (i) as an investment business company under SIBA; (ii) as an insurance manager or insurance intermediary under the Insurance Act, 2008; and (iii) not licensed to carry on any activity that is regulated under the Banks and Trust Companies Act, 1990, Company Management Act, 1990 or the Financing and Money Services Act, 2009; or
(d) of such class or description as may be prescribed by the regulations made under section 159 of the Act.
The following three sets of regulations come into force on 1 October 2018: (i) the Segregated Portfolio Companies (Mutual Funds) Regulations, 2018 (“Mutual Fund SPC Regulations”); (ii) the Segregated Portfolio Companies (Insurance) Regulations, 2018 (“Insurance SPC Regulations”); and (iii) the Segregated Portfolio Companies (BVI Business Company) Regulations, 2018 (“Business Company SPC Regulations”).
Extended Scope – unregulated entities may be SPC’s
The Business Company SPC Regulations significantly widen the scope of use of SPC’s by providing that a segregated portfolio may be used for any of the following purposes –
(a) holding assets for high net worth persons, including institutional investors;
(b) operating multiple businesses or types of business, including setting up new business ventures, which require segregation from the business of the segregated portfolio company;
(c) engaging in property development and management, including the acquisition of, trading in, leasing of, or otherwise generally dealing in, real estate, ships, aircraft, and other property which the company considers will be more efficient and cost-effective to be managed or otherwise dealt with through a segregated portfolio;
(d) engaging in bankruptcy remote vehicles in structured finance and capital markets transactions; and
(e) performing such other duties, responsibilities and investments as are not inconsistent with any restriction or prohibition under the Act or the Business Company SPC Regulations.
An SPC may create any number of segregated portfolios provided that it gives notice to the Commission within 14 days of the creation of the segregated portfolio.
Application to incorporate or register
The application to incorporate or register an SPC should be in the approved form and include the name of the SPC, the details of its directors, a list of the segregated portfolios, details of a director appointed by the SPC in respect of each segregated portfolio, the memorandum and articles of association and the written approval of the Financial Services Commission of the British Virgin Islands (the “Commission”).
Re-registration as SPC
An application to register an existing BVI business company as an SPC should be accompanied by:
a) the memorandum and articles and the changes proposed to be made;
b) a statement in the approved form, signed by at least one director setting out:
i) the assets and liabilities of the company as at a date no more than 6 months prior to the application;
ii) details of any material transactions, events or other matters not reflected in the statement of assets and liabilities that have or may affect, the assets and liabilities;
iii) the segregated portfolio assets of each portfolio, and the general assets; and
iv) how the liabilities of the company will be satisfied;
c) a declaration in the approved form that:
i) resolutions of directors have approved the registration of the company as an SPC;
ii) the company is solvent and that the company and each proposed segregated portfolio will, after the assets of the company have been allocated to segregated portfolios, be solvent; and
iii) the company has given notice to members of its intention to apply for registration as an SPC.
Knowledge, expertise and FSC Approval
The Commission may give its approval to the incorporation or registration of a company as a segregated portfolio company subject to such conditions as it considers appropriate, if it is satisfied that the company has, or has available to it, the knowledge and expertise necessary for the proper management of segregated portfolios.
Mutual Fund additional requirements
From 1 October 2018, the Mutual Fund SPC Regulations will revoke and replace the Segregated Portfolio Companies Regulations, 2005 and make provision for mutual fund specific matters. In addition to the matters set out generally in this note, the application to incorporate a mutual fund SPC must include details of the administrator, details of the functionaries to be appointed in respect of each segregated portfolio, an application to be approved, recognised or registered as a mutual fund and a copy of the offering document or investment warning. A mutual fund SPC must have one or more administrators, managers, and custodians. A mutual fund SPC or a segregated portfolio may apply to the Commission to be exempt the requirement of having a manager or custodian or other functionary (except an administrator) in respect of a class of segregated portfolio or segregated portfolio company.
Creation of mutual fund segregated portfolios
A public fund SPC may not create a segregated portfolio without the prior written approval of the Commission. A private or professional fund SPC may not create a segregated portfolio without the prior written approval of the Commission unless the functionaries are the same as those listed on the SPC’s application to be recognised as a fund and they are in a recognised jurisdiction. An incubator or approved fund may not create a segregated portfolio without the prior written approval of the Commission. In certain circumstances related to segregated portfolios listed in the application for incorporation or registration as an initial segregated portfolio the Commission’s prior approval is not required. In these circumstances the Commission must be provided with a copy of the offering document or investment warning and informed of the creation of the segregated portfolio within 14 days.
Insurance SPC additional requirements
In addition to the matters set out generally in this note, the application to incorporate an Insurance SPC must include details of the insurance manager and an application to the Commission for licensing as an insurer. The Insurance SPC Regulations require that:
- an insurance SPC shall have an insurance manager at all times and may have one or more
insurance intermediaries or loss adjusters.
- The agreement appointing the insurance manager shall specify the segregated portfolios over which they are appointed and their responsibilities.
- An Insurance SPC shall ensure that its segregated portfolios maintain a minimum margin of solvency as per Division 1 of Part IV of the Regulatory Code and, for that purpose, Schedule 5 of the Regulatory Code shall determine the margin of solvency but an Insurance SPC segregated portfolio is not required to maintain any contributed capital.
- An Insurance SPC may not create a segregated portfolio without the prior written approval of the Commission.
4. Fees
SPC’s incorporated or registered under the different SPC Regulations have different fees. On the coming into force of the Amendment Act the fees will be as set out in the table below.
| Application and Approval Fees | Initial Fees | Annual Fees | |
| Insurance SPC | $3000 per SPC Application fee to incorporate or register non Cat C company | $3000 per SPC Initial fee on incorporation or registration non Cat C company | Non Cat C Company fee calculated in accordance with the gross written premium |
| $750 per segregated portfolio Application fee | $750 per segregated portfolio non Cat C company Initial fee | $350 per segregated portfolio Annual fee (subject to maximum annual fee of $15000 in any year)
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| Application and Approval Fees | Initial Fees | Annual Fees | |
| $7500 per Cat C company Application fee to incorporate or register | $7500 per SPC Initial fee on incorporation or registration Cat C company | Cat C Company $7500 per SPC Annual fee | |
| $1000 per segregated portfolio Application fee | $1000 per segregated portfolio Cat C company Initial fee (subject to maximum initial fee Cat C company of $20000 in any year) | Cat C Company $1000 per segregated portfolio Annual fee | |
| $250 Approval fee to incorporate or register a Company (including Cat C) as an SPC | |||
| $3000 per SPC Application fee to register an existing BVI business company (non Cat C company) as an SPC | |||
| £7500 per SPC Application fee to register an existing BVI business company (Cat C company) as an SPC | |||
| Mutual Fund SPC | $1500 application fee to incorporate or register SPC | $1500 SPC initial fee on incorporation or registration | $1500 SPC annual fee |
| $350 application fee per segregated portfolio | $300 segregated portfolio initial fee | $350 segregated portfolio annual fee | |
| $350 application for approval of segregated portfolio | $300 initial fee in respect of each approved segregated portfolio | ($10,000 maximum annual fees per mutual fund SPC in any year) | |
| $350 notification of creation of segregated portfolio | ($10,000 maximum initial fees per mutual fund SPC in any year) | ||
| Business Company SPC | $450 per SPC Application fee to incorporate or register | $450 per SPC Initial fee on incorporation or registration | $450 per SPC Annual fee |
| $400 per segregated portfolio Application fee | $400 per segregated portfolio Initial fee | $400 per segregated portfolio Annual fee | |
| $250 Approval fee to incorporate or register an SPC
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| Application and Approval Fees | Initial Fees | Annual Fees | |
| $500 per SPC Application fee to register an existing BVI business company as an SPC | |||
| $650 Approval fee to register an existing BVI business company as an SPC |
5. Operating an SPC
5.1 Directors’ Duties
Directors of SPC’s are subject to express statutory duties additional to their fiduciary duties and duties of care, diligence and skill. Directors are under an obligation to establish and maintain procedures to:
- segregate, and keep segregated, segregated portfolio assets separate and separately identifiable from general assets;
- segregate, and keep segregated, segregated portfolio assets of each segregated portfolio separate and separately identifiable from segregated portfolio assets of any other segregated portfolio; and
- where relevant, to apportion or transfer assets and liabilities between segregated portfolios, or between segregated portfolios and general assets of the company.
Segregated portfolio may contract
On the coming into force of the Amendment Act a segregated portfolio of an SPC may enter into a contract or other agreement with another segregated portfolio in the same SPC. The directors of an SPC may permit a segregated portfolio to enter into a contract or other agreement with another segregated portfolio of another SPC, with another SPC or with any other entity that a segregated portfolio may properly enter into a contract or other agreement with.
5.2 Financial Statements
The financial statements of an SPC must take into account the segregated nature of the company and must include the following:
- the nature of the SPC;
- how the segregation of the assets and liabilities of the company impacts upon members of the company and persons with whom the SPC transacts; and
- the effect that any existing deficit in the assets of one or more segregated portfolios of the company has on the general assets of the SPC.
A mutual fund SPC (that is not an incubator fund or an approved fund) and an Insurance SPC must appoint an auditor and audited financial statements must be filed with the Commission within six months of the end of the SPC’s financial year.
On the coming into force of the Amendment Act the SPC may prepare separate or consolidated financial statements for its segregated portfolios or SPC. The Commission may exempt the SPC from the obligation to produce financial statements in respect of a segregated portfolio or class of segregated portfolio shares.
5.3 Limitation on Transfer of Segregated Portfolio Assets
The transfer of assets attributable to an individual segregated portfolio of an SPC to another person other than in the ordinary course of business are not permitted except under the authority of the Court.
The Court will not make a segregated portfolio transfer order unless it is satisfied that the creditors of the company entitled to have recourse to the segregated portfolio assets attributable to that segregated portfolio consent to the transfer or that those creditors would not be unfairly prejudiced by the transfer.
6. Termination of segregated portfolio
On the coming into force of the Amendment Act an SPC may terminate a segregated portfolio by notice to the Commission stating that:
a) the SPC has terminated or intends to terminate the segregated portfolio, indicating when the termination took effect or will take effect;
b) the segregated portfolio does not, or on the date of termination did not or will not, have segregated portfolio assets attributable to the segregated portfolio;
c) the segregated portfolio has no, or on the date of termination did not or will not have any, outstanding liability;
d) where the segregated portfolio has, or on the date of termination had or will have, an outstanding liability, the liability had been or will be paid from the general assets of the SPC; and
e) confirming that the segregated portfolio was not terminated or is not being terminated in a manner prejudicial to investors and creditors (and in the case of an Insurance SPC the policy holders).
If the segregated portfolio has never engaged in business the notice to the Commission must also confirm this fact and give a reason why.
The effect of termination is that neither the SPC nor a creditor of the terminated segregated portfolio or anyone else may:
a) commence legal proceedings, carry on any business or in any way deal with the segregated portfolio assets attributable to the segregated portfolio prior to the termination;
b) cdefend any legal proceedings, make any claim or claim any rights for, or in the name of, the segregated portfolio; or
c) act in any way with the affairs of the segregated portfolio.
The SPC, a creditor or other person may:
a) in the case of the SPC, reinstate the segregated portfolio; or
b) in the case of a creditor or any other person, make application to the Court for an order reinstating the segregated portfolio; and
c) continue to carry on legal proceedings that were instituted in relation to the segregated portfolio prior to its termination; or
d) pursue a claim on behalf of or in relation to the segregated portfolio.
7. Insolvency
As previously discussed, assets of a particular segregated portfolio are not available to meet the claims of creditors of another segregated portfolio. Although creditors may have recourse to the SPC’s general assets, the assets of other, solvent segregated portfolios are outside the reach of creditors. Therefore, each individual portfolio is “ring-fenced” in the event of the insolvency of another.
BVI law allows for the distribution of dividends from segregated portfolios provided that they can satisfy the solvency test. In determining whether the solvency test is satisfied, no account may be taken of the assets and liabilities of other segregated portfolios in the SPC or of the general assets of the SPC.
8. Advantages of SPCs
BVI SPC’s have generally been popular and offer significant advantages to investment funds and insurers. It has become increasingly clear that the use of SPC’s is appropriate in other instances and that market practice has changed (e.g. the use of SPC’s in connection with an online platform) requiring an update in existing rules related to SPC’s.
To understand fully the advantages of SPCs it is useful to consider the structures traditionally adopted by for example investment funds. To ensure that investments funds were capable of offering access to different trading strategies, investment funds traditionally opted for either a “multi class” or “umbrella” fund structure.
Prior to SPCs, “multi-class” fund structures were typically a single legal entity offering various classes of shares designated according to the type of investment strategy employed or the character of the assets in which the class invested. Each class investing in a “pool” (or investment portfolio) of assets with particular investment objectives and policies. A multi-class structure offers investors the ability to select a fee and expense structure that is most appropriate for their investment goals.
The problem with a multi-class fund based on an ordinary company was that in the event of its winding up whilst the segregation of assets and liabilities among the shareholders is effective, the segregation between classes is not effective against third party creditors generally who will have recourse against all the assets of the company (including the assets of other classes). Umbrella funds were established as a means to combat this problem. Umbrella funds capitalise on the principal of separate corporate personality, adopting a group structure which allows various assets and liabilities and investment pools to be separated throughout the group. However, whilst they achieve the objective they increase costs and management time with each subsidiary in the umbrella group structure.
By adopting an SPC structure investments funds and insurance companies have been able to offer segregation of accounts within a single corporate structure, thereby allowing different classes of investors or policy holders to invest or participate in different assets whilst only being exposed to the potential losses and liabilities attached to their chosen portfolios. From 1 October 2018 these advantages will be available to unregulated BVI business companies which register as SPCs under the Business Company SPC Regulations. For example: groups of companies with subsidiaries holding real estate, ships, aircraft or other assets, could opt to incorporate or register as an SPC and hold different assets in separate segregated portfolios. A company with distinct divisions to its business with different risk or liability profiles might consider incorporating or registering as an SPC and transferring each division to a separate segregated portfolio. In short if there is a situation where it is desirable to limit the recourse of third party creditors of a company to a particular asset or pool of assets of that company incorporating or re-registering as an SPC may be appropriate.
September 2018
This legal guide is intended to be for the general information of the clients and professional contacts of Forbes Hare. It is not intended to be comprehensive, and should not be relied on as a substitute for independent legal advice in any circumstances.
Key contacts
José Santos Partner
DD: +1 284 852 1899
Catherine Ross Partner
DD: +65 6823 1540