The Variable Capital Company – Challenging the Boundaries of Corporate Norms in Mauritius

Which is the most effective legal vehicle to house a collective investment vehicle? This is a recurring question in the minds of fund managers looking to establish a new fund, alongside the questions of fund domicile and international norms.  

Preferred fund domiciles have also been competing with one another by offering innovative and efficient tools to attract foreign capital. As a result, in 2022, the government of Mauritius introduced the Mauritius Variable Capital Company (VCC) through the enactment of the Variable Capital Companies Act 2022 (“the Act”) to provide an innovative and cost-effective vehicle for housing several funds under one legal entity.  

A VCC is a body corporate which conducts its activities through its sub-funds and special purpose vehicles (SPVs). A sub-fund of a VCC fund may operate as a regulated fund, whether closed-end or open-end, and may elect to have a separate legal personality from that of the VCC fund.  

Currently, there are five VCC funds that have been authorised by the Financial Services Commission (FSC) and there are several other applications in the pipeline. The Act has recently been amended to allow a VCC to act as a family office. It is expected that a Family Office VCC may, through different SPVs, cater for the unique financial, investment and administrative needs of high net worth families and individuals. 

The main particularity of the VCC is that it allows for the existence of several legal persons within a single structure. It challenges the traditional feature of body corporates where one entity could only have a single persona and that persona’s body of assets was readily available to meet the debt claims of that entity, naturally, without possible recourse to the assets of the persons behind the company.  

The VCC goes further in ring-fencing protection, such that where a sub-fund or SPV elects to have separate legal personality, such sub-fund or SPV is considered a separate “legal person”, which means that the assets and liabilities of one sub-fund or SPV are segregated from those of other sub-funds and SPVs within the same VCC.  

This segregation of assets and liabilities is a crucial aspect that allows for risk management and investor protection. If one sub-fund were to experience financial difficulties, the assets of other sub-funds would remain unaffected, providing a level of insulation. The assets of a sub-fund or SPV cannot be used to discharge any liability of the VCC or any of its other sub-funds or SPVs, including during winding up, administration or receivership of the sub-fund, SPV or VCC.  

Fund managers can set up different types of funds within the same structure and do simultaneous multi-offerings. They can also create funds targeting specific asset classes or investment strategies within the same vehicle, allowing them to tailor their fund structures to meet the unique needs and preferences of investors interested in those particular strategies. 

Another interesting feature of a VCC is that it provides cost efficiency by streamlining management and operations by using a single company secretary, Money Laundering Reporting Officer (MLRO), deputy MLRO, compliance officer and potentially, a single board, at the option of the manager. Regulatory and administrative costs may be shared.  

Mauritius already had a protected cell company (PCC) structure, which is used to structure entities with prescribed business activities, including funds and asset-holding companies. To date there have been 74 collective investment schemes and 26 closed-end funds which have been structured as PCCs, authorised by the FSC.  

A PCC is a company that segregates the assets and liabilities of different classes (or sometimes series) of shares from one another and from the general assets of the PCC. Each of these “classes” or “series” would be denominated as belonging to a particular “cell”. Only the assets of each cell are available to meet the liabilities of creditors in respect of that cell. Where there are liabilities arising from a matter attributable to a particular cell, the creditor may only have recourse to the assets attributable to that cell. 

In many ways, the VCC enhances the capabilities of the PCC. A short outline of the key differences is set out below.

Mauritius is the first country in Africa to have adopted VCC legislation. With the introduction of the Act, the country retains its competitive edge and the VCC cements its value proposition for cross-border investors. It is hoped that the introduction of the VCC will help Mauritius to continue evolving as an international financial centre and to maintain its position as a leading jurisdiction for fund structuring.