VCC Regime

The Dubai International Financial Centre (“DIFC”) does not cease to impress. The Centre has just enacted Variable Capital Company Regulations (“Regulations”) to boost its already attractive offering even further.

The Regulations have introduced a new type of a private company, namely a Variable Capital Company(ies) (“VCC(s)”).

Under the Regulations, the VCCs will be subject to the general Companies Law regime of the DIFC, however, with important modifications and exclusions specifically tailored to the unique nature of the VCCs.

What is a VCC?

A private DIFC company can be:

(i) incorporated as a VCC;

(ii) converted into a VCC; or

(iii) continued into the DIFC as a VCC.

A VCC can only serve as a holding company. DIFC companies that wish to conduct other activities cannot exist as VCCs.

A VCC cannot hire employees.

A VCC’s share capital structure is flexible. It may create Segregated Cells or Incorporated Cells but may not have both.

Segregated Cells are distinct cells (but not entities) within a VCC for holding and managing separate assets and liabilities. The Segregated cells have no legal personality. They form an integral part of the VCC itself. In case of the VCC with Segregated Cells, the only vehicle with legal personality is the VCC itself.

On the other hand, however, Incorporated Cells are legally distinct entities created under the VCC framework. They are deemed separate private companies for regulatory purposes. Despite such construct, the Incorporated Cells have no subsidiary/ parent relationship with the VCC or other Incorporated Cells. An Incorporated Cell may apply to be registered as an independent company in the DIFC, with continuity of shareholders, rights and liabilities.

What is Unique about the VCCs’ Capital?

Assets of VCCs can fall under the Cells (attributable to each Cell, including proceeds of Cell Share Capital and reserves) or outside the cells (all other assets).

The Share Capital of a VCC or Cell must equal the Net Asset Value of the relevant assets that fall under the specific Cell.

Asset Protection

Interestingly, Cellular Assets attributable to a particular Cell are available only to creditors of that Cell and are shielded from claims by Shareholders or creditors of other Cells or the VCC itself. Where liability arises attributable to a particular Cell, only that Cell’s Cellular Assets shall be used to satisfy the liability.

When Can a VCC Be a Suitable Structuring Vehicle?

A VCC can be a useful structuring tool in several circumstances, including:

(i) Asset Protection and Risk-Fencing: VCCs are valuable when strong asset protection is required, as Cellular Assets attributable to a particular Cell are available only to the creditors of the VCC, under the specific Cell.

(ii) Family Office Arrangements: A VCC/ a Cell may be used to hold assets for a Family Office, e.g. where different family members/ family branches require segregated asset pools, separate assets management or clear protection between the family interests.

(iii) Investment Fund Structures: A VCC/ a Cell may be used to hold assets for a fund, e.g. where asset segregation is required, multiple sub-funds shall operate under a single umbrella.

(iv) Crowdfunding Structures: A VCC/ a Cell may be used to hold assets for a Crowdfunding Structure, e.g. where multiple crowdfunding projects need to fall under separate asset compartments.