1. BACKGROUND

 

On 1 October 2018, the Variable Capital Companies Bill was moved for its second reading in the Singapore Parliament and was passed into law. The long awaited implementation of the Singapore Variable Capital Company (also known as the “VCC”) is now almost complete. The introduction of the VCC is intended to further enhance Singapore’s appeal as an international fund management hub. It expands Singapore’s existing toolbox of domestic vehicles and brings it into closer alignment with competitor jurisdictions such as Hong Kong, Luxembourg, Ireland and traditional offshore jurisdictions.

 

Singapore continues to gain prominence as global funds centre. According to a survey conducted by the Monetary Authority of Singapore (“MAS”) in 2016, Singapore had reached S$2.7 trillion of assets under management (“AUM”). This amount grew to S$3.3 trillion by the end of 2017. Approximately 70% of the AUM is invested into the Asia-Pacific Region which demonstrates the position of Singapore as a hub for the deployment of regional capital. It is anticipated that the introduction of the VCC will help these positive growth trends to continue.

 

2. THE CONCEPTUAL PREMISE OF THE VCC

 

The VCC is an entirely new statutory regime and is not a mere adaptation of existing Singapore corporate law. A VCC is essentially a corporate vehicle with two main defining features. The first is the ability to establish segregated cells, while the second is the concept of variable capital.

 

A. Separate cells

Cell companies are not a new innovation in the financial services space. Offshore jurisdictions have led the development of cellular companies which now exist with subtle variations between jurisdictions and statutory regimes. Cell companies continue to be used as reinsurance or captive insurance vehicles, and commonly form part of both open and closed-ended fund structures. As the name suggests, a cell is a notional segregation of assets and liabilities which is typically made within the same entity. This segregation is established by way of statutory provisions which protect against liabilities crystallising in one cell from being recoverable against the assets held in a different cell. This internal ring fence is intended as an alternative to establishing separate asset or strategy specific special purpose vehicles which can become an unwieldly proposition. A flow on benefit from this internal segregation is the ability to compute the profit and loss or balance sheet position of a cellular company on a cell by cell basis. This means if a cell represents a particular investment strategy, then investors in that cell do not need to be concerned about the performance of other cells. While cell companies are well known within the financial services industry, what is less clear is the robustness of this internal segregation from a foreign law perspective. There are potentially complicated conflict of laws questions which may arise if a judgement is awarded in a particular country against a cell company and the courts of that foreign jurisdiction enable recovery in bankruptcy against assets kept in other cells. It remains to be seen how permeable or not the legal ring fence will be when it comes under serious scrutiny.