The integrity of the framework supporting Bermuda’s segregated accounts companies has been validated by the Bermuda Supreme Court in the first full review of the two-decade-old legislation.

A judgment delivered by Narinder Hargun, the Chief Justice, was highlighted in an article written by lawyers who appeared before him.

The judgment was in respect of the island’s segregated accounts regime under the Segregated Accounts Companies Act 2000.

An application for directions was made to the Supreme Court by Rachelle Frisby and John Johnston, the joint provisional liquidators of two insolvent companies, Northstar Financial Services (Bermuda) Ltd and Omnia Ltd.

Michael Todd KC, of London’s Erskine Chambers, appeared with Christina Herrero of Bermuda’s Marshall, Diel and Myers Ltd, and they were assisted by Tom Hall of Erskine Chambers, in the Northstar matter, representing the JPLs.

Ms Herrero represented the JPLs in the Omnia matter.

The authors wrote: “Each of Northstar and Omnia had operated, or purported to operate, segregated accounts under various Private Acts, which acts entitled the companies to operate SACs in respect of policies of insurance and other investment products provided by them. In addition, on 4 April 2008, Northstar registered as a SAC under SACA. Thereafter, it issued further policies, the operation of which business was governed by SACA.”

The legal trio added: “Following a directions hearing lasting five days, the Chief Justice has delivered an important judgment concerning, and upholding, the integrity of the statutory regime governing the creation and operation of segregated accounts companies in Bermuda.

“That judgment provides the first comprehensive review of the statutory regime under the Segregated Accounts Companies Act 2000.”

Summing up, the authors said: “The comprehensive judgment of the court will repay a careful reading and consideration. But there are ten points that clearly can be taken away from it.

“First and foremost is that, following a comprehensive review of the statutory regime under SACA, the court has delivered an important judgment concerning, and upholding, the integrity of the regime in Bermuda governing the creation and operation of SACs.

“Second, the integrity of a segregated accounts structure will depend upon strict compliance with the provisions of SACA.

“Third, the essential ingredient for the creation of a segregated account is the concept of linkage.

“Fourth, all that is required for effective segregation is that particular assets that are capable of being segregated for the benefit of a particular policy are connected to that policy in the records maintained by a company.

“Fifth, it is not necessary that the assets ‘linked’ to an account can demonstrably be derived from an original investment. All that segregation requires is that the segregated assets can be identified.

“Sixth, the time for determination of whether an account is a segregated account is when the account is opened or established. It matters not that assets may subsequently cease to be connected to the account.

“Seventh, on the facts of the application, segregated accounts were established when the accounts were opened.

“Eighth, it matters not that assets which were purchased and were to be used to satisfy claims to fixed policyholders were exchanged for other, less valuable assets, because those purchased assets were never connected to those fixed accounts in any event.

“Ninth, the fact that valuable assets were wrongfully exchanged for less valuable assets is no reflection on the segregated accounts regime in Bermuda or on its integrity. That could happen in any company, whether or not it is an SAC.

“Tenth, SACA does not purport to, and cannot, prevent fraud or other unlawful conduct by officers and others, any liability for which would have to be pursued outside of the SACA regime.”