Campbells: Cayman court decision puts the ‘segregated’ back into SPC

Campbells’ Alan Craig, Paul Kennedy and Nienke Lillington discuss the Grand Court’s recent ruling on the strict application of the defining feature of segregated portfolio companies.


In a very recent judgment of Mr Justice Parker, published on 10 November 2022, the Cayman Islands Grand Court has confirmed the strict application of the defining feature of segregated portfolio companies (SPC), namely: a strict separation of assets and liabilities between portfolios, thereby ensuring that SPCs remain a viable and attractive entity to use in the captive insurance business.

The SPC explained

As many readers will be aware, SPCs are Cayman’s exempted companies which consist of one overarching legal entity that contains various segregated cells within its structure. Those cells are referred to as segregated portfolios (SPs) and have no legal personality separate from the SPC of which they form a part.

Nevertheless, each SP is – and must be – separately identifiable, and its name must include the word ‘segregated portfolio’ or ‘SP’. The most important feature of the SPC is that each SP can have its own assets and liabilities, despite not having a separate legal personality.

Furthermore, the assets and liabilities of an individual segregated portfolio are ring-fenced and “absolutely protected” from the assets and liabilities of all other segregated portfolios within the SPC structure (section 220 of the Companies Act (2022 Revision)) and from the general assets of the overarching SPC.

As a result, a creditor of one segregated portfolio cannot have recourse to the assets of another segregated portfolio, and a creditor of the SPC cannot have recourse to the assets of any of the SPs.

The duty of the directors of SPCs to “establish and maintain […] procedures” to ensure the segregation of assets and liabilities is provided for by statute (section 219(6) of the Companies Act). Importantly, the segregation principle is also explicitly applicable to liquidators who are appointed to act in the winding-up of an SPC (section 223(1) of the Companies Act).

In light of these special features, SPCs are particularly well suited to the captive insurance market as they allow any insurance risk to be placed in isolation from the risks of other portfolios within the structure, and policyholders often ‘rent’ cells within an SPC which contains multiple unrelated captive insurance vehicles.


The interpretation and application of the segregation principle was recently in question in the liquidation of Performance Insurance Company SPC (in official liquidation). Performance Insurance had been rendered insolvent due to a fraud committed in relation to some of the SPs and ensuing litigation in the US against Performance Insurance.

However, other SPs within Performance Insurance were solvent and operating normally and were neither affected by nor involved in the fraud. Joint official liquidators were appointed by the Cayman court to liquidate Performance Insurance as a whole.

Early on in the liquidation, the shareholders of two of the SPs within Performance Insurance (Bottini Insurance SP and SSS Insurance SP) raised concerns that the joint official liquidators were not acting in the interest of the solvent SPs, which were simply seeking to novate their structures in order to exit the SPC structure in liquidation.

Rather, the liquidators were charging pro rated fees and expenses to Bottini SP and SSS SP for dealing with matters which did not specifically relate to those cells – such as reviewing the discovery in the US litigation. Those SP owners identified a conflict of interest between their solvent SPs and other SPs within the Performance Insurance estate since the liquidators’ approach meant that Bottini SP and SSS SP would effectively be funding the insolvent defrauded SPs.

Represented by Campbells LLP, Bottini SP and SSS SP successfully applied to the Grand Court to have an additional joint official liquidator appointed specifically over those two SPs in order to safeguard their interests. However, as against Bottini SP and SSS SP, the joint official liquidators still sought their fees and expenses of any work done prior to the appointment of the additional joint official liquidators. SSS SP, again represented by Campbells, resisted the joint official liquidators’ application for fees and expenses. SSS SP was primarily concerned that the joint official liquidators had allocated general expenses of the liquidation among all of the SPs within Performance Insurance, despite the statutory segregation of assets and liabilities.

The Judgment

On SSS SP’s application, Mr Justice Parker resolved various issues which will have implications for the liquidation of SPCs going forward, and which ensure that the SPC structure remains attractive to the captive insurance business by safeguarding its strict statutory requirement of a separation of assets and liabilities.

Firstly, the joint official liquidators had not, at the outset of the liquidation, separately recorded their time and fees as against the SPC itself and each individual SP. As a result, the joint official liquidators had to retrospectively re-allocate their time and fees as between Performance Insurance and the individual SPs, thereby incurring additional costs.

In addition, the joint official liquidators had failed to apply to the Court for the approval of their proposed fee allocation strategy, despite express orders from the Court, which had granted them leave “to apply to the Court for directions and approval of the apportionment of fees and expenses amongst [Performance Insurance] and the [SPs]”.

Instead the joint official liquidators’ stated position was that they had sought to apportion their remuneration and expenses in a “fair and equitable” manner among Performance Insurance and SPs.

The Court found it was “regrettable” that the joint official liquidators had not sought the Court’s prior approval, and found that the statutory provisions made it clear that a liquidator’s “ability to pay a company’s general liquidation expenses (including his or her own remuneration) out of the company’s assets does not extend to the SPs of an SPC in liquidation” and that “[c]osts associated with the liquidation of the SPC cannot automatically be allocated pro rata to the SPs”, as they had sought to do.

Crucially, the Court refused to allow the joint official liquidators to charge their general fees of the liquidation of the SPC to Bottini SP and SSS SP, specifically.

The Court held that the role of individual cells was not to “backstop or guarantee” the liabilities or expenses of the SPC as a whole.

Lessons from Performance Insurance

While it is rare for a captive insurance SPC to be placed into liquidation, it can happen, as the Performance Insurance case shows.

Litigation in the US related to certain SPs pushed the SPC as a whole into insolvency. This means all the cells in the SPC were in an insolvent liquidation process regardless of their solvency at cell level.

There is no provision in the Companies Act for automatic novation and transfer out of solvent cells so those cells are entirely reliant on the liquidators to promptly and efficiently novate them.

If the Performance Insurance liquidators’ arguments had been accepted by the Grand Court, there would have been a perverse incentive on liquidators to keep solvent cells in the insolvent liquidation process in order to fund the rest of the estate.

This would effectively mean that there is contagion between cells where there has been a fraud or insolvency. Other cells which had otherwise been operating normally would be dragged into the official liquidation process and ultimately become insolvent as their assets are used to fund the liquidation rather than their own captive insurance business.

Thankfully the Grand Court has provided clear and unequivocal confirmation that the segregation principle laid down in the Companies Act is paramount and continues regardless of whether the SPC is trading or in liquidation.

In future cases of SPC insolvencies, we would expect liquidators to seek guidance from the Court up front if there is any uncertainty as to how fees can be charged, novate any solvent cells as quickly and efficiently as possible, and only seek to charge individual cells fees for work which directly and specifically benefits those cells and which has been approved in advance by the owners of the cells. It is hoped that this significant decision will copper-fasten the Cayman Islands SPC as a safe, secure vehicle of choice for captive insurance for many years to come.

Alan Craig, Paul Kennedy and Nienke Lillington of Campbells LLP acted for SSS SP and Bottini SP in the litigation referred to above.

12 August 2024
5-6 November 2025

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