The Supreme Court’s decision on a pending case is likely to have huge ramifications for Bermuda and be of massive consequence to companies seeking to set up and operate segregated accounts from the island, a Bermuda law firm has said.

Marshall Diel & Myers Ltd also stated that the decision will also be of consequence to liquidators seeking to deal with the assets of segregated accounts companies.

The firm represents the joint provisional liquidators of the companies in the matter of Northstar Financial Services (Bermuda) Ltd (in liquidation) and in the matter of Omnia Ltd (in liquidation) before the Supreme Court of Bermuda, Commercial Jurisdiction.

Northstar Financial Services had offered fixed and variable-rate annuity and investment products before being ordered wound up in 2021.

Hundreds of millions of dollars and thousands of accounts and policyholders are involved, but there are also serious questions related to the use of segregated accounts companies.

The joint provisional liquidators are Rachelle Ann Frisby and John Johnston, of Deloitte Ltd.

Writing in a recent edition of Insol World, the quarterly journal of Insol International, Marshall Diel & Myers’s senior associate Tina Herrero wrote an article on navigating segregated accounts companies in Bermuda.

Insol International is a worldwide federation of national associations for accountants and lawyers who specialise in turnaround and insolvency.

In the article, Ms Herrero discussed the Bermuda court’s review of issues relating to the segregated accounts company legislation, which was enacted in 2000.

She wrote: “There is very little legislation and authority on the interpretation and operation of SACA (the Act). This lack of authority has raised issues of considerable public importance which, as yet, remain unanswered.

“The attendant uncertainty is inimical to the jurisdiction’s desire and interest in promoting and facilitating SACs.”

She concluded the paper with the latest word: “The court’s determination of these issues could have wide-ranging consequences for the registration and operation of SACs in Bermuda.

“The court’s ruling is not only crucial for the parties in these particular cases, but will likely have a substantial impact on: (i) companies seeking to register as a SAC under SACA, (ii) companies seeking to ensure that their ongoing operations and business provide for effective segregation of accounts and (iii) the payment of policyholders and creditors in liquidations of SACs.“

Katie Tornari, director and head of commercial/civil litigation, Marshall Diel & Myers Limited, said the pending judgment will be very important to the use of segregated accounts in Bermuda.

Ms Herrero further explained in the article: “The use of segregated accounts in Bermuda is widespread, for example, within the insurance industry.

“Individuals and companies who set up segregated accounts can benefit from tax reductions, costs savings and increased flexibility.

“In Bermuda, individuals and companies across a number of industries seek to use segregated accounts to protect investments such as by creating a ‘firewall’ for assets and liabilities within a segregated account.

“The use of segregated accounts provides several benefits, such as tax benefits, flexibility and costs savings.

“A segregated accounts company is a company which can set up a ‘segregated account’ by which the assets and liabilities of that particular account are separated or segregated from those attributable to other segregated accounts, and from the company’s general accounts.”