Umbrella fund structures in the Cayman Islands are commonly established either as an exempted company (“EC”) or as a segregated portfolio company (“SPC”). While both structures serve as fund vehicles with multiple sub-funds, they differ significantly in terms of legal treatment of assets and liabilities.
EC vs. SPC Structures
Under an EC structure, an umbrella fund and all its sub-funds form a single legal entity. Unless otherwise contractually agreed through limited recourse provisions, creditors of an EC may claim against the assets of the entire umbrella fund, creating a risk of cross-contamination across sub-funds.
By contrast, whilst an SPC is also a single legal entity, there is statutory segregation of assets and liabilities. Each sub-fund (referred to as a segregated portfolio) maintains its own assets and liabilities. Creditors of one segregated portfolio have recourse only to the assets of that specific portfolio and not to others, thereby offering “ring-fencing” protection.
This statutory segregation makes SPCs attractive to investors seeking enhanced protection, and to investment managers for their operational flexibility and cost efficiency.
Converting an Existing EC into an SPC
Conversion of an EC into an SPC is permissible under Cayman Islands law. This process involves filings with the Registrar of Companies (the “Registrar”) and, where applicable, the Cayman Islands Monetary Authority (“CIMA”). The key steps are outlined below.
1. Registrar of Companies Requirements
To convert an EC into an SPC, a declaration must be made by at least two directors for submission to the Registrar. This declaration must set out an accurate statement:
- of the assets and liabilities of the company as at a date within three months prior to the date of the declaration;
- of any transaction or event which, at the date of the declaration, has occurred or is expected to occur between the date of the statement of assets and liabilities prepared pursuant to (i) and the date of registration of the company as an SPC which, if it had occurred before the date of the declaration, would have caused material changes to the assets and liabilities disclosed in the declaration;
- that the SPC intends to operate, and the assets and liabilities which the company proposes to transfer to each of those segregated portfolios;
- that, on registration as an SPC, the company and each segregated portfolio will be solvent; and
- that each creditor of the company has consented in writing to the transfer of assets and liabilities into segregated portfolios or alternatively that adequate notice has been given to all creditors of the company and that ninety-five per cent by value of the creditors have consented to that transfer of assets and liabilities into segregated portfolios.
A special resolution of shareholders authorising the transfer of assets and liabilities into segregated portfolios must accompany the declaration. Typically, the resolutions will also approve a set of amended and restated memorandum and articles of association to reflect the SPC structure. CIMA consent must also be submitted to the Registrar in the case of the EC being a licensed fund.
2. CIMA Requirements
Where the company is licensed by CIMA, written consent by CIMA must be obtained prior to conversion.
If the EC operates as a CIMA-regulated fund, CIMA must also be notified ofthe change of name and other material changes to the fund within 21 days after the board of directors become aware of such changes.
Practical Considerations
Where the company is an operating fund with existing investors and/or creditors, the conversion may be complicated as it involves investors and creditors' authorisation/consent. However, where the company has not yet commenced operation or has no existing investors and creditors, the conversion will be simple and straight forward.
How Conyers Can Assist
Conyers has extensive experience in assisting with fund conversions. We can support you through the full process, including:
- preparing the required directors' declaration and shareholder resolutions;
- updating the fund's constitutional documents to reflect the SPC structure;
- managing filings with the Registrar of Companies;
- updating the fund's offering documents to reflect structural changes;
- preparing CIMA-prescribed forms; and
- attending to CIMA filings.
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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