A Bermuda company (including a limited liability company) may be registered as a segregated accounts company (a "SAC") under the Segregated Accounts Companies Act 2000 (as amended) (the "SAC Act") to enable it to establish one or more 'segregated accounts' (sometimes referred to as 'cells') within such company.

A SAC can use its segregated accounts to segregate its assets and liabilities, so that the assets and liabilities linked to a particular segregated account are statutorily separated from the assets and liabilities of its other segregated accounts and from its general assets and liabilities.

SACs have created opportunities for the introduction of innovative legal structures across manifold business areas and we encounter SACs routinely in connection with a wide range of uses, including insurance and reinsurance-related vehicles, multi-class investment funds, digital asset businesses and multi-asset holding companies.

This short note provides an overview of some of the unique features of a SAC, as well as some of the key practical considerations to take into account when dealing with a SAC.

Unique features of a SAC

Compared to a standard Bermuda company, a SAC has several unique features:

Legal Status

Pursuant to the SAC Act, segregated accounts are not separate legal entities. Rather, segregated accounts simply enable the statutory segregation of the SAC's assets and liabilities, whilst still being under one legal entity – i.e. the SAC.

Segregated Assets

The SAC Act provides certainty that any asset that is linked to a particular segregated account will not be available or used to meet liabilities linked to any other segregated accounts or to the general account of the SAC. Accordingly, creditors of a particular segregated account will have no rights or claims over any other segregated account.

Issue of Securities

A SAC may create and issue securities in one or more classes linked to a particular segregated account, the proceeds of which are included in the assets linked to such segregated account. Such securities may carry the right to receive distributions from that segregated account.

Statutory Protections

The SAC Act implies a provision into every contract where the parties agree that the liability will not be paid out of assets other than assets of the segregated account to which the transaction is linked and that any recoveries in breach of this provision are held in trust by the recipient. In addition, the SAC Act enables a SAC to make appropriate adjustments between segregated accounts in case: (a) a creditor, in breach of the SAC Act, enforces its claims against assets not linked to the account with whom the creditor has dealings; or (b) the SAC is unable to recover the sum.

Segregated Accounts Representative

The SAC Act requires a SAC to appoint a segregated account representative in Bermuda (typically a regulated person or a person approved by the Minister of Finance in Bermuda). Details of the segregated account representative will be included in the SAC's register of directors and officers (or, if applicable, its register of managers).

Practical considerations when dealing with a SAC

When transacting with a SAC, there are a number of specific considerations that should be taken into account including:

a) At the outset of any transaction, the identity of the relevant segregated account(s) should be confirmed.

b) Once confirmed, it will be necessary to obtain additional corporate records providing evidence of the valid establishment of the segregated account(s) (this is typically in the form of the corporate approvals authorising the establishment of the relevant segregated account(s)).

c) Any transaction documents will need to contain a proper description of the SAC, including the relevant segregated account(s). Typically, limited recourse provisions will also be included pursuant to which the relevant counterparties agree that they will only have recourse to the assets linked to the relevant segregated account(s).

d) Similarly, the corporate authorisations of the SAC should refer specifically to it acting for, and on behalf of, the relevant segregated account(s).

As noted above, the SAC Act includes provisions to ensure that creditors in respect of a particular segregated account will not be in a position to enforce their claims against assets which are not linked to that segregated account. Helpfully, the SAC Act has been considered by the Bermuda courts and its principal statutory provisions have been confirmed (including as recently as July 2023 in the matter of Omnia Ltd [2023] SC (Bda) 58 Civ. 28 July 2023).

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.