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Cayman Islands

The Cayman Islands has always been responsive to the needs of the international financial community in introducing expedient legislation. Last year saw the creation of the segregated portfolio company (SPC) by way of amendment to the Companies Law of the Cayman Islands, and now revisions in 2003 will make it a more attractive corporate vehicle for mutual funds and multi-issuer structured finance vehicles. Provisions that have caused difficulties in obtaining a rating for structured finance deals will be removed and a mechanism introduced to enable any existing Cayman Islands company to convert into an SPC. The key points are described below.


Subject to conditions set out in the revised legislation dealing with creditor protection, any existing Cayman Islands company will be able to convert into an SPC. Under the initial legislation there was no provision for existing companies to convert.

Flexibility in share series

An SPC will be able to create separate portfolios by reference to a series of shares as well as by reference to separate classes of shares.

No flow over

An amendment is made to strengthen the principle of the separation of the assets and liabilities of each segregated portfolio. Specifically, where provision is included in the articles of association, there will be no flow over from an insolvent cell to general assets.

Directors' liability

The directors' statutory indemnity from the company (in respect of a breach of the requirement that all contracts with a segregated portfolio must be executed by or on behalf of the relevant portfolio) will be removed. Directors will be personally liable for breach notwithstanding any provision in the articles or any contract with the company, but may be relieved of liability by the court in certain circumstances. A director may be given a contractual indemnity in respect of such liability, but only from the portfolio in respect of which such liability arose.

Secured creditors: removal of stay of execution

The rating agencies had been troubled by the use of SPCs for debt transactions given the stay in the event of a receivership order. Specific amendment will enable secured creditors to enforce their security against a segregated portfolio notwithstanding the making of a receivership order against that portfolio. This will enable an SPC to create security in respect of a segregated portfolio which is acceptable to, and will be rated by, the rating agencies in the same manner as an exempted company.


Every legal proceeding which has commenced under the initial legislation may be continued and completed as if the law had not changed. In other cases the new law will apply. SPCs formed under earlier legislation may take the benefit of the amendment mentioned above, provided proceedings have not commenced. This will reinstate the position of secured creditors who would otherwise have been prejudiced by the stay.

These changes, along with a number of other amendments to the Companies Law that are expected to be passed in 2003, will enhance the already favourable corporate legislative regime in the Cayman Islands.

Anthony Travers

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