The decision of the Grand Court of the Cayman Islands to uphold the segregation of captive insurance portfolios in the context of an official liquidation is a “welcome reiteration of the segregation principle”, according to law firm Campbells who represented the stakeholders.
Partner Paul Kennedy and senior associate Nienke Lillington describe the judgement of Honourable Justice Raj Parker as “an extremely important recognition of the preservation of the function and benefits of the segregated portfolio company (SPC)”.
The case concerned an application to appoint an additional joint official liquidator (JOL) of Performance Insurance Company SPC to the two segregated portfolios (SPs) of Bottini SP and SSS SP.
As a key feature of the Cayman captive industry, a SPC is attractive to captive insurers owing to the strict segregation of assets and liabilities of each SP within the company.
Campbells argued that strict segregation must therefore be maintained in the liquidation of Performance Insurance, contending that a liquidator’s ability to pay a company’s general liquidation expenses out of the company’s assets does not automatically include individual SPs of the SPC.
Bottini SP and SSS SP expressed concern that the appointed JOLs had intent to allocate general expenses of the liquidation among all of the SPs within Performance Insurance.
Parker accepted Campbells’ submissions to appoint an additional JOL to act in the interests of Bottini SSP and SSS SP.
Campbells notes that this preserved segregation of captive insurance portfolios “confirms that the SPC structure remains a robust and stable way to hold assets in a segregated manner to protect assets in one cell from the liabilities of another”.
Kennedy and Lillington continue: “The judgement of Justice Parker is an extremely important recognition of the preservation of the function and benefits of the SPC. Justice Parker’s judgement is the first judgement in which the “golden thread” of insolvency law has been applied in the SPC context. The appointment of an additional JOL to certain SPs within an SPC structure to safeguard segregated assets is a welcome reiteration of the segregation principle.
“The true value of this judgement is likely to accrue to the many stakeholders of Cayman SPCs who are now assured that the assets in their portfolios cannot be used to “backstop or guarantee” general liabilities or expenses of an SPC, even in an insolvent liquidation. It is hoped that this decision will provide added comfort to participants in the thriving Cayman captive insurance market that the Cayman SPC product remains robust and legally certain even in the most adverse of circumstances.”
