British Virgin Islands: Incorporating a Segregated Portfolio Company – Practical Steps

Introduction

Under the BVI Business Companies Act, 2004 (as amended) ("BVI BC Act"), a company limited by shares may be incorporated or, if it has already been incorporated, be registered by the Registrar of Corporate Affairs as a segregated portfolio company ("SPC") provided that the Financial Services Commission (the "Commission") has given its written approval and provided that the company:

  1. is, or on its incorporation will be, licensed as an insurer under the Insurance Act, 1994;
  2. 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 ("SIBA"); or
  3. is, or on its incorporation will be, of such class or description as may be prescribed by regulations made under section 159 of the BVI BC Act.

At present only licensed insurers and recognised or registered funds can incorporate or register as an SPC under the BVI BC Act.

Key features of SPCs

An SPC is a single corporate legal entity that benefits from the statutory segregation of assets and liabilities between segregated portfolios established within the same company.

SPCs can establish segregated portfolios to segregate the assets relating to segregated portfolios with different investment criteria, thus protecting shareholders from the potential of cross liability arising from the adverse investment performance of other segregated portfolios.

The benefits of operating segregated portfolios are not restricted to new companies first incorporated as SPCs and it is possible for existing BVI Business Companies to apply to be re-registered as SPCs upon application to the Registrar of Corporate Affairs and the Commission.

An SPC may issue shares in respect of a segregated portfolio, the proceeds of which are included in the segregated portfolio assets of the segregated portfolio in respect of which the segregated portfolio shares are issued. 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.

No separate legal personality

The SPC is a single legal entity within which may be established various segregated portfolios. Each segregated portfolio must be separately identified or designated and must include in its identification or designation, the words "Segregated Portfolio". However, a segregated portfolio of a company does not constitute a separate legal entity from the company. Any action taken in respect of a segregated portfolio is the action of the company for and on behalf of that segregated portfolio.

Name includes "SPC" at length or in abbreviated form

An SPC must include the letters "SPC" or the words "Segregated Portfolio Company" in its name.

Segregation of assets and liabilities

An SPC may create one or more segregated portfolios for the purpose of segregating the assets and liabilities of segregated portfolios. The assets of an SPC have to be designated as either segregated portfolio assets or as general assets. The segregated portfolio assets comprise the assets of the SPC held within or on behalf of the segregated portfolios, namely (a) assets representing the consideration paid or payable for the issue of segregated portfolio shares and reserves attributable to the segregated portfolio; and (b) all other assets attributable to or held within the segregated portfolio. The general assets of an SPC comprise the assets of the company which are not segregated portfolio assets.

Segregated portfolio assets are only available and can only used to meet liabilities to the creditors of the SPC who are creditors in respect of that segregated portfolio and are absolutely protected from the creditors of the SPC who are not creditors in respect of that segregated portfolio.

To preserve the statutory segregation of assets and liabilities, the SPC must identify the relevant segregated portfolio(s) and make clear that business is being transacted for and on behalf of the particular named segregated portfolio(s). Where transaction documentation is being executed for and on behalf of a segregated portfolio, it must be indicated in the document that such execution is in the name of, or by, or for the account of, such segregated portfolio or portfolios.

Directors' duties and liabilities

The directors of an SPC have a duty to establish and maintain procedures to segregate, and keep segregated, and separately identifiable assets of each segregated portfolio from the general assets and from the assets of any other segregated portfolio. To the extent that this is required, the directors also have a duty to apportion or transfer assets and liabilities between segregated portfolios, or between segregated portfolios and general assets of the company.

The directors do not breach the duties imposed on them by allowing any segregated portfolio assets or general assets, or a combination of both, to be collectively invested, or collectively managed by an investment manager, provided that the assets remain separately identifiable.

Recourse of creditors to the applicable segregated portfolio and general assets

Creditors of a segregated portfolio have recourse only to the assets of that segregated portfolio of which they are a creditor, and to any general assets of the company (being assets not comprised within any segregated portfolio) where the segregated portfolio assets attributable to the relevant segregated portfolio are insufficient.

When dealing with an SPC, a third party should clearly establish which segregated portfolio of the SPC it is contracting with (and therefore which of the relevant segregated portfolio assets it has recourse against).

The process

An application to the Commission for approval to register a new company as an SPC is dealt with in the Segregated Portfolio Companies Regulations, 2005 (the "Regulations") and must include the following information:

  1. the name, or proposed name of the company (which must include the letters "SPC" or the words "Segregated Portfolio Company");
  2. application under SIBA for recognition of the company as a private or professional fund or for registration of the company as a public fund (with accompanying documents required by SIBA);
  3. details of the person who is, or who will be appointed as the administrator of the company;
  4. a list of the initial segregated portfolios that it is intended will be created, including the name, identification or designation of each segregated portfolio;
  5. a copy of its offering document for each of the initial segregated portfolios that it is intended will be created; and
  6. in respect of each of the initial segregated portfolios that it is intended will be created, details of the functionary who will be appointed by the company in respect of the portfolio.

Incorporation process

The company's registered agent files the application to incorporate the company as an SPC together with the proposed constitutional documents.

At the same time, an application is made to the Commission to register the company as a Mutual Fund and for approval of the incorporation of the company as an SPC.

Once the Commission notifies the Registrar of Corporate Affairs of the grant of its approval for the company to be incorporated as an SPC, the Registry will issue the certificate of incorporation and stamp the constitutional documents, thereby confirming the incorporation of the company as an SPC.

Additional matters

A mutual fund SPC must, at all times, have one or more directors, at least one which is a natural person, one or more administrators, managers and custodians and may appoint one or more investment advisors. The instrument under which a functionary is appointed must specify the respective segregated portfolio or portfolios in respect of which the functionary is appointed and his responsibilities and duties in respect of each such segregated portfolio.

A mutual fund SPC must also have an auditor who will be responsible for auditing its financial statements, and such audited financial statements must be filed with the Commission within six months of the end of its financial year.

Other tasks

The following tasks will need to be undertaken:

  1. prepare the general prospectus/offering memorandum and each supplement to reflect the proposed structure, including name changes (the company must have the letters "SPC" in its name and each portfolio (class) must have the words "Segregated Portfolio" in its name);
  2. create one or more segregated portfolios and allocate assets to the segregated portfolios and to the general assets of the company;
  3. establish and maintain procedures to segregate, and keep segregated, and separately identifiable assets of each segregated portfolio from the general assets and from the assets of any other segregated portfolio;
  4. prepare an appropriate set of memorandum and articles of association to include SPC provisions; and
  5. arrange for the relevant accounts to be set up to identify/segregate the portfolios.

Timing

The Commission's authority to grant approval for a company to register as an SPC will usually, in the case of private and professional funds, be given in between 24 to 72 hours and, in the case of a public fund, be given in between seven to fourteen business days.

Fees

Government fees

The disbursements will include the following Government fees:

  1. fees in respect of an application to incorporate or register a company as a segregated portfolio company are US$1,000 in respect of the company and US$250 for each segregated portfolio included in the application;
  2. initial fees in respect of the application for registration of the SPC as a mutual fund during the first six months of any calendar year are US$1,000 in respect of the company and US$100 per segregated portfolio approved. If the application of registration is submitted on or after 1 July in any year the fees are US$500 and US$50 respectively. However, the total initial fees payable by a mutual fund SPC to the Commission cannot exceed US$10,000; and
  3. annual fees (due on or before 31 March) for a mutual fund SPC are US$1,000 for the company and US$100 for each segregated portfolio. However, the total annual fees payable by a mutual fund SPC to the Commission cannot exceed US$10,000.

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.

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.

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