Unlocking Investment Potential: Mauritian Protected Cell Companies and Variable Capital Companies offer ringfencing advantages for fund managers and investors

Mauritius has increasingly become a sought-after destination for African asset managers and international investors. This is primarily due to its diverse range of options and familiarity as a jurisdiction of choice for fund structures and investment vehicles, particularly those which permit the segregation of assets and liabilities, such as protected cell companies (PCCs) and variable capital companies (VCCs).

PCCs are often structured to meet the commercial objectives of asset managers and investors. For example, they can provide investor returns from specific cells, distinctly separating non-cellular assets and cellular assets and restricting liability arising (i.e. ringfencing) from one cell to that cell only. VCCs can be used to create sub-funds and special purpose vehicles that fall within the same category, while offering the same level of protection (i.e. ringfencing).

Protected Cell Companies

A PCC is a special purpose vehicle (SPV) that separates assets owned by each cell within the company. It operates as a single legal entity that can be divided into multiple cells, ensuring the distinct separation of assets and liabilities among these cells. This separation is governed by the Protected Cell Companies Act (the PCC Act) and the Companies Act (the Companies Act). In addition, it is a corporate structure, limited by shares, that consists of a core (non-cellular) and an indefinite number of cells (cellular).

PCCs offer a unique advantage by enabling the segregation of risks, assets and liabilities of different individuals and/or corporate entities within a shared structure. Any liability incurred by one cell affects only that specific cell's assets.

PCCs are typically used for prescribed activities such as investment funds, asset holding or structured finance business. These activities may require the PCC to hold a Global Business Licence (GBL). Under the Financial Services Act, where the majority of shares, voting rights or legal or beneficial interest in a resident corporation (other than a bank licensed by the Bank of Mauritius) is held or controlled by a person who is not a citizen of Mauritius and that corporation proposes to conduct or already conducts business principally outside Mauritius, an application for a GBL should be made to the Financial Services Commission of Mauritius (the FSC).

Setting up a PCC

A PCC may be incorporated in Mauritius as a Global Business Company (GBC), and existing foreign or Mauritian companies may also be converted to PCCs. Approval from the FSC is typically required for the creation of each cell.  The board of directors of a PCC is responsible for maintaining the separation of cellular assets from non-cellular assets. The board is also required to maintain this level of distinction from cell to cell.

Benefits of PCCs

PCCs offer numerous advantages, such as reduced administrative costs, a secure investment environment, and the opportunity to improve returns for investors, making them an attractive option for life insurance companies, general insurance companies, mutual funds, and other collective investment schemes.

Variable Capital Companies

A VCC is a corporate vehicle designated to provide flexibility in capital management, primarily for collective investment schemes such as mutual funds or hedge funds. A VCC can be structured as an open-ended or closed-ended fund, and it does not have a minimum capital requirement.

The Variable Capital Company Act (the VCC Act) introduced on 12 April 2022 expanded Mauritius' investment fund structures. This is a company incorporated under the Companies Act which carries out its activities through its sub-funds and SPVs.

Sub-funds of a VCC can function as Collective Investment Schemes (CIS) or Closed-End Funds (CEF) and may opt for separate legal identities. SPVs, with approval from the FSC, can also have separate legal personalities and are increasingly used by family offices.

Setting up a VCC

A VCC can be incorporated in Mauritius under the Companies Act or as a continuation of an existing foreign company.

Benefits of a VCC

Like PCCs, VCCs offer several advantages to investors, including flexibility in capital management, no minimum capital requirement, no restrictions on investment policies and no restrictions on distribution policies.

Conclusion

In Mauritius, both PCCs and VCCs are popular investment vehicle options that provide investors with flexibility and security. While PCCs and VCCs share similarities in terms of segregating assets and liabilities within their structures, the distinguishing feature lies in the separate and distinct legal identity that sub-funds of VCCs can have. In contrast to PCCs, where the cells remain part of the same legal entity, VCC sub-funds can potentially attain a unique and distinct legal identity separate from that of the overarching VCC. PCCs are well-suited for life insurance companies, general insurance companies, mutual funds, and collective investment schemes, while VCCs are tailor-made for collective investment schemes such as mutual funds and hedge funds.

Asset managers considering the establishment of Africa-focused venture capital structures may benefit from the versatility offered by VCC and PCC structures in Mauritius when exploring investment opportunities across Africa. The most appropriate structure will often depend on the commercial imperatives driving the establishment of the relevant vehicle.

Written by Ashford Nyatsumba, Partner, Masai Buthane, Associate & Ané Lindeque, Candidate Attorney from Webber Wentzel