ICM SPC: Insolvency of a Segregated Portfolio Company
In the matter of ICM SPC1 – can an SPC be liquidated where one or more portfolios are insolvent?
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In a Nutshell
In refusing to restrain the presentation of a winding up petition based on an unpaid shareholder call owed by a segregated portfolio of an SPC, the Grand Court (the “Court”) provided further indication that it has the jurisdiction to appoint liquidators to an SPC as a whole on the cash flow insolvency of a single portfolio. Therefore, distress in one portfolio may affect the SPC as a whole. Whether the Court would exercise its discretion to wind up the SPC where one or more portfolios are cash flow insolvent and other portfolios are cash flow solvent remains to be seen and much will turn on the facts of the case at hand.
Background
An SPC is a company which is permitted to create one or more segregated portfolios in order to segregate the assets and liabilities of: (i) each segregated portfolio from the assets and liabilities of any other segregated portfolio in the SPC structure; and (ii) the assets and liabilities of the SPC which are not held within any segregated portfolio of the SPC (called the general assets of the SPC).
The SPC is the legal entity. While each of its segregated portfolios operates as statutorily segregated distinct and individual economic units (effectively internally segregated pools of assets and liabilities) they are not separate legal entities and sit under the umbrella of the SPC. A segregated portfolio does not have separate legal personality.
SPCs are becoming a more common Cayman Islands vehicle – particularly in the insurance sectors.
Given the SPC structure of a single legal entity with distinct portfolios that could be pursuing different objectives from each other, a number of questions have arisen as to how the insolvency of SPCs operate. For example, when is an SPC insolvent and when may the Court wind up the SPC as whole where some portfolios are solvent and some are insolvent?
While the Court is yet to make a winding up order over an SPC on the basis that one or more of its portfolios are insolvent (unable to pay its debts as they fall due) over recent years there is a line of authority that has made it clear that the Court could make a winding up order against the SPC where only one segregated portfolio is unable to pay its debts and other segregated portfolios are solvent. This is on the basis that the Court has accepted that, if a segregated portfolio is unable to pay its debts, the legal entity, the SPC, is unable to pay its debts (the segregated portfolio being a segregated economic unit of the SPC)2.
Decision
The Court dismissed an application by a Cayman Islands incorporated SPC for an order restraining joint voluntary liquidators (“JVLs”) of a BVI incorporated entity from causing the BVI entity to present a winding up petition against the SPC based on a statutory demand. The SPC sought the order on the basis that the relevant debt was disputed on substantive and bona fide grounds. The Court disagreed, holding there was no bona fide dispute on substantive grounds.
The statutory demand was based on a debt owed pursuant to a shareholder call due to the BVI entity from a segregated portfolio of the SPC. The statutory demand provided that the JVLs would apply to wind up the SPC as a whole on the basis that the segregated portfolio was unable to pay its debts. Although the Court did not have to determine whether the SPC should be wound up based upon the inability of a single segregated portfolio to pay its debts (and the point does not appear to have been raised), the judgment is another in the trend following the Oakwise decision in 2024 which indicates that the Court does have jurisdiction to wind up an SPC due to the cash flow insolvency of a single portfolio.
Whether the Court would exercise its discretion to do so, particularly where other segregated portfolios are cash flow solvent, is another matter.
The Court refused to restrain the presentation of the winding up petition on the basis that the debt was not disputed on bona fide substantive grounds – however, the hearing of the winding up petition has been stayed due to an appeal before the BVI courts in relation to the underlying debt claim. Hence the matter remains to be determined.
1 [2025] CIGC (FSD) 17
2 Re Holt Fund SPC [2024 (1) CILR Note 1], Re Bo Run SPC (Unreported, 7 March 2024) and Re Oakwise Value Fund SPC [2024 (2) CILR 549]
This case forms part of the Cayman Islands Insolvency and Restructuring Review, covering key developments across insolvency, restructuring, commercial disputes and merger appraisal.
View the full review →
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– Asia Television Holdings Limited – Officeholders and restructuring
– Yeung Ka Man – Security enforcement
– In re Farfetch Limited – Chapter 15 and discovery
