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Segregated Account Companies Speakers: Jan Woloniecki, Head of Litigation, Attride-Stirling & Woloniecki Dennis Silvia, President, Cedar Consulting, LLC
Everything you always wanted to know about the Segregated Accounts Companies Act 2000 (“ SAC Act”) but were too afraid to ask ... • I HISTORICAL PERSPECTIVE • In the beginning ... • Quiz Time • The Pre-History of the SAC Act • II OVERVIEW OF THE SAC ACT • III A TEST CASE: Gottex v. New Stream • IV CONCLUSION
In the beginning ... “In the beginning the Universe was created. This has made a lot of people very angry and has generally been regarded as a bad move.”Douglas Adams
Is it (a) ...t (a) ... The steam engine?
Or (b) ... The transatlantic telegraph cable?
Or (c) ... The sewerage system?
Or (d) ... None of the above
Answer: (d) The limited liability company
... one of the most important inventionsof the Twentieth Century The segregated accounts company
OVERVIEW OF THE SAC ACT You could write a book about captive insurance, reinsurance and SAC companies ... See: O’Neill & Woloniecki, “The Law of Reinsurance in England and Bermuda” (3rd ed., 2010), pp. 1008-22
The Nature of the Beast “The [SAC] Act creates a unique offshore legal construct under which: (a) account owners, if they are characterised as shareholders, are issued shares of a designated class; and (b) the segregated accounts company conducts business on behalf of investors by reference to the relevant class of shares through transactions linked to segregated accounts or cells ...” Kawaley J., Gottex 
3 Core Concepts 1. No separate legal personalityThe segregated accounts of a SAC Act company do not have separate legal personality: SAC Act, s. 17(1).Nonetheless, the company may enter into contracts in respect of a particular segregated account and sue in the name of that account: SAC Act, s. 18(7).
2. Assets and liabilities in Segregated Accounts There must be: “... aseparate and distinct account (comprising or including entries recording data, assets, rights, contribution, liabilities and obligations linked to such account) of a segregated accounts company pertaining to an identified or identifiable pool of assets and liabilities of such segregated accounts company pertaining to an identified or identifiable pool of assets and liabilities of such segregated accounts company which are segregated or distinguished from other assets and liabilities of the segregated accounts company for the purposes of this Act.” SAC Act, s. 2(1)
3. Statutory Firewall SAC Act, s. 17(2) sets up a statutory firewall, providing that any liability “linked” to a segregated account shall be a liability of that account, and not of any other account. Any asset “linked” to a segregated account must held in in a “separate fund” and, “shall not be available or used to meet liabilities to, and shall be absolutely and for all purposes protected from, the general shareholders and from creditors of the company who are not creditors with claims linked to segregated accounts.”
A TEST CASE: Gottex v. New Stream BNY AIS Nominees & Gottex ABL (Cayman Ltd) v. New Stream Capital Fund Ltd  Bda L.R. 34
Factual Overview Pieter Brueghel the Elder (1568)
Legal Issues The Plaintiffs argued: The Plan was illegal and void because it violated the SAC Act requirement to maintain segregated accounts, and could not be effective without their consent. In all the circumstances, it was just and equitable for the Court to appoint a receiver over the class C and F accounts under SAC Act, s. 19. The Defendant argued that the directors of the Bermuda Fund had power under its bye-laws to give effect to the Plan without the consent of all classes of shareholders.
CONCLUSION Lessons to be learnt from the Gottex case