The segregated accounts company (the “SAC”), was introduced in The
Bahamas by the Segregated Accounts Companies Act, 2004 (the “Act”). The concept
of a SAC is that a company, which remains a separate legal entity, may create
segregated accounts (each a “Segregated Account”) such that the assets and
liabilities of each Segregated Account are separate from the assets and liabilities
of each other Segregated Account. A SAC consists of (i) a general account or
core cell (the “General Account”) containing assets and liabilities which are
statutorily separated from the assets and liabilities of the other Segregated
Accounts and (ii) one or more Segregated Accounts.
The concept of a SAC (otherwise known as a segregated portfolio
company or segregated cell company) exists in various other jurisdictions
including Guernsey, the British Virgin Islands, Bermuda, St. Vincent and the
Grenadines and The Cayman Islands.
This memorandum provides a summary of the key features of a SAC as
provided by the Act and considers the use of the SAC as a popular vehicle for multi-class investment funds and
captive insurance companies.
ESTABLISHING A SAC
Any company which is incorporated or registered under the Companies
Act (the “Companies Act”) or the International
Business Companies Act, 2000 (the “IBC Act”) of The Bahamas may
apply to the Registrar of Companies (the “Registrar”) to be registered as a
SAC, with the prior written consent of its primary regulator, so long as it is
engaged in one of the businesses set out below, as follows:
·
the business of investment funds, with the consent of the
Securities Commission of The Bahamas (the “Commission”) or if applicable, its
investment fund administrator;
·
the business of issuing securities, with the written consent of
the Commission;
·
insurance business, with the written consent of the Registrar of
Insurance;
·
if it is a subsidiary of a bank or trust company and not licensed
by the Central Bank of The Bahamas, with the written consent of the Central
Bank of The Bahamas; or
· if it is engaged in any other business, with the written consent
of a primary regulator who may be prescribed by the Minister Responsible for
Companies.
The Act requires that a SAC in miscellaneous business (where the
Minister has to designate a primary regulator) appoint a segregated accounts
representative (the “Representative”) in The Bahamas, who must be appointed by
the primary regulator. The Representative must be resident in The Bahamas and
licensed in The Bahamas as a licensee under any of the following Acts: the Banks
and Trust Companies Regulation Act, the Financial and Corporate Services
Providers Act, the Securities Industry Act, the Investment Funds Act, the
Insurance Act or the External Insurance Act.
(i)
the name of the proposed company with the expression “SAC” or
“Segregated Accounts Company”,
(ii)
the nature of the business of the company,
(iii)
the address of the registered office of the company in The Bahamas
and
(iv)
the date of incorporation of the company.
Upon approval of the application by the Registrar and payment of
the prescribed registration fees, the Registrar will register the company as a
SAC, publish notice of such registration in the Gazette and issue a certificate
of registration.
ADMINISTRATION OF A SAC
Section 9 of the Act requires that a SAC inform any person with
whom it enters into a transaction of the following:
(i)
that it is a SAC,
(ii) where the transaction relates to a segregated account for the
purposes of that transaction, identify that segregated account and
(iii) include a reference to
the fact that the company is registered under the Act on its letterheads and
contracts.
If a SAC contravenes either of these requirements, the directors shall,
notwithstanding any provision in the SAC’s governing instrument, the “Governing
Instrument”:
(i)
incur personal liability in respect of that transaction and
(ii)
unless otherwise provided for in the Governing Instrument of the SAC,
have a right of indemnity against the assets of the general account unless they
were fraudulent, reckless negligent or acted in bad faith.
The Court however, has the power to relieve a director of all or
part of his personal liability if satisfied that (i) he was not aware of the circumstances
giving rise to his liability and in being unaware was not fraudulent, reckless
or negligent and did not act in bad faith or (ii) he expressly objected and exercised
his rights as a director so as to try and prevent the circumstances giving rise
to his liability.
The Governing Instrument of the SAC consists of the agreements,
memorandum and articles, resolutions, registers or other documents setting out the rights, obligations and
interests of account owners in respect of each Segregated Account.
STRUCTURAL FEATURES
The Governing Instrument of a SAC will need to take note of and
give effect to certain key structural provisions, as follows:
·
Name – The name of a SAC must include the letters “SAC” or the
words “Segregated Accounts Company”;
·
Rights and obligations of Account Owners– The rights and
obligations of account owners must be evidenced in a Governing Instrument.
·
Governing Law – The Governing Instrument in relation to each
Segregated Account of the SAC must be governed by the laws of The Bahamas and
the parties thereto must submit to the jurisdiction of the courts of The
Bahamas.
·
Classes of Shares – The Governing Instrument must identify each
Segregated Account to which each class of shares is linked.
·
Dividends and Redemptions – A SAC may pay a dividend in respect of
securities linked to a particular Segregated Account whether or not a dividend is declared on
any other class of securities linked to the same or any other Segregated
Account or any other securities issued by the SAC.
A SAC may also repurchase the shares or securities linked to a
particular Segregated Account. However, payments in respect of dividends, distributions and redemptions of shares may
only be paid (i) out of the assets of the Segregated Account to which the
relevant shares or securities are linked and (ii) if the statutory solvency test
for the relevant Segregated Account set out in the Act is met.
· Segregation of Assets and liabilities – The assets and liabilities
of a SAC are either linked to a Segregated Account or to the General Account. A
SAC is required to maintain (i) records in accordance with generally accepted
accounting principles used in the preparation of the financial statements of
the SAC so that the records of the SAC to the best of the knowledge,
information and belief of the directors andofficers clearly show the share
capital, proceeds of rights, issues, reserves, assets, liabilities and expenses
linked to each segregated account and (ii) a General Account with records in
accordance with the Act showing the assets and liabilities which are not linked
to a Segregated Account and which discloses any assets intended to be applied
to a risk of any nature and which therefore exposes such assets to liability or
loss.
·
Subject to the provisions of the Act, any liability linked to a
Segregated Account is a liability of that Segregated Account only and any asset
linked to a Segregated Account is held exclusively for the benefit of the
account owners of the Segregated Account and any counterparty to any
transaction linked to that Segregated Account. Only the assets recorded in the General
Account are available to meet liabilities not linked to a Segregated Account.
·
Financial Statements – A SAC is required to prepare or cause to be
prepared financial statements in respect of each Segregated Account. However,
any account owner of a Segregated Account (i.e. any holder of shares linked to
a Segregated Account or any person expressly identified in the Governing Instrument
or in the records of the SAC as being an account owner for the purposes of the
Act in respect of that Segregated Account) may agree in writing to waive his right
to have laid before a general meeting financial statements or the auditor’s
report thereon for an indefinite period of time, so long as such waiver is
expressed to be revocable at the option of such account owner.
Subject to the foregoing waiver right, a copy of the financial
statements for each Segregated Account must be made available to account owners
of that Segregated Account at such intervals and for such periods as are agreed
between the SAC and the account owner, but in any event, not less than once in
each financial year.
A company which is in existence and has conducted business prior
to its registration may also apply to be registered as a SAC. However, in
addition to filing the documentation outlined above in the section headed ’Establishing
a SAC’, such company must:
·
file a statutory declaration made by at least two (2) of its
directors with its primary regulator, setting out a true and accurate statement
as to the financial position of the company;
·
declare that on registration, the company and each Segregated
Account will be solvent, no known creditor will be prejudiced, that all known
creditors have consented to the registration or that no creditors have valid
grounds for objecting to registration; and
· attach evidence of consent in writing of 75% of the persons who
would on registration of the company as a SAC, be the account owners of the
Segregated Accounts of the company and 75% of those who would, on registration
of the company be creditors.
CROSS BORDER CONTRACTS
Whilst the Act provides that the assets and liabilities of each
Segregated Account are separate from the assets and liabilities of each other
Segregated Account, there is a risk that if proceedings are brought in another
jurisdiction, a Court in such other jurisdiction might not recognize such segregation.
Currently, we are not aware of any case law in any other jurisdiction where the
structure of a Bahamian SAC has been tested. As the assets of a SAC will likely
be held outside of The Bahamas, it is recommended that, where possible,
contracts entered into by a SAC be governed by the laws of The Bahamas and
subject to the exclusive jurisdiction of Bahamian Courts.
If a contract entered into by a SAC is neither governed by Bahamian
law nor subject to the exclusive jurisdiction of the Courts of The Bahamas, we
recommend that provisions be inserted in the relevant contract limiting the
recourse of the counterparty to the assets of the relevant Segregated Account.
ANNUAL REQUIREMENTS
Because a SAC must be incorporated under the Companies Act or the
IBC Act prior to its registration as a SAC, each SAC must comply with the
filing requirements and pay the annual fees prescribed by the Companies Act or
the IBC Act, as the case may be. In addition, a SAC is required to (i) file an
annual declaration with the Registrar of Companies by the 31st January of each
year, signed by at least two (2) directors certifying that the SAC is and that its
operations during the preceding year were in compliance with the provisions of
the Act and (ii) pay the annual fees set out in the ‘Bahamas Government Fees’ section
of this post.
WINDING UP AND RECIEVERSHIP
A SAC incorporated under the provisions of the Companies Act or
the IBC Act may be wound up voluntarily or by the Court in accordance with the
provisions of the Companies Act or the IBC Act as the case may be. In either
case, the SAC must be wound up in accordance with the provisions of the Act and
the liquidator must deal with the assets and liabilities linked to each
Segregated Account in accordance with the provisions of the Act.
In addition, a receivership order may be made by the Courts of The
Bahamas in respect of one or more Segregated Accounts upon application by the
SAC, the directors of the SAC, any creditor of the SAC in respect of that
Segregated Account, any account owner of that Segregated Account or the primary
regulator of the SAC solong as the Court is satisfied that:
·
the particular Segregated Account is not solvent, the general
account is not solvent, a liquidation has been commenced in relation to the
company or for other reasons it appears to the Court to be just and equitable
that a receiver should be appointed; and
·
the making of a receivership order would achieve (i) the orderly
management, sale, rehabilitation, run off or termination of the business of, or
attributable to,the Segregated Account, or (ii) the distribution of the assets
linked to the Segregated Account to those entitled thereto.
During the period of operation of a receivership order, the functions
and powers of the directors and managers and any liquidator of the SAC cease in
respect of the business and assets linked to the Segregated Account in respect
of which the order was made. Further, once a receiver has been appointed in
respect of any Segregated Account, the SAC or any account owner or creditor of
that Segregated Account may, where any action or proceeding against the SAC in
respect of that Segregated Account is pending, apply to the Court for a stay of
those proceedings and upon such application, the Court may stay the proceedings
on such terms as it thinks fit.
However, the stay of proceedings does not prevent a counterparty
with a valid security interest over the Segregated Account from enforcing his
security in accordance with its terms, subject to applicable law.
APPLICATIONS
The Bahamas SAC has become an increasingly popular vehicle for use
by investment funds, particularly multi-class funds where different investment
strategies are employed in investing the assets of each Segregated Account.
BAHAMAS GOVERNMENT FEES
Initial Registration/Annual fees
Companies Incorporated under the Companies Act
·
Government Incorporation fee - $330.00;
·
Stamp duty - $60 for authorized share capital not exceeding $5,000
and $3.00 for each additional $1,000 of authorized capital thereafter; and
· Annual fee
-$350 per annum entities which are Bahamian
owned
-$1,000 per annum for foreign owned
entities Companies Incorporated under the IBC Act
· Government Incorporation fee - $330.00; and
·
Annual fee - Authorized capital not exceeding
US$50,000 - $350 per annum
· Authorized capital of
US$50,000+ - B$1,000 per annum
Segregated Accounts
Companies fees
· Initial application
fee for registration as a SAC $500.00
· Initial filing fee for
the establishment of the Segregated Accounts $500.00
· Annual fee payable by
the SAC $500.00
· Annual fee payable in
respect of each Segregated Account $500.00
The information contained in this post is for your information and
nothing contained in this post is intended to constitute a legal opinion. If you require specific advice you should contact a Bahamian corporate attorney
or a Bahamian corporate services provider. You can contact a Bahamian corporate attorney
or a Bahamian corporate services provider by clicking here.
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