The Governing Instrument: Where SAC Protection Is Won or Lost

Every corporate vehicle has a document at its heart. For a company it is the articles; for a trust, the deed; for a partnership, the agreement. For a segregated account inside a Jamaican segregated accounts company (SAC), it is the governing instrument — and this series has already flashed its warning light twice. Article 4 noted that an account owner takes the interest stipulated for him, and that absent stipulation his interest is nil. Article 5 closed by calling the governing instrument the single most consequential document in the structure. This article makes good on those warnings. The statute builds the ring-fence; the governing instrument decides what everyone standing inside it actually owns, controls and can do. As throughout the series, the machinery below reflects the regional model on which Jamaica’s Segregated Accounts Companies Act, 2024 is built, to be verified against the Jamaican text on execution-critical points.

A Constitution in Fragments

Start with what the governing instrument is, because it is broader than most first-time readers expect. The statute defines it as one or more written agreements, instruments, memoranda or articles of association, prospectuses, resolutions of directors, registers or other documents — including electronic records — setting out the rights, obligations and interests of account owners in respect of a segregated account. It is, in other words, a constitution that may exist in fragments: a subscription agreement here, a prospectus there, a board resolution creating the class, an entry in the register. That breadth is a practical convenience and a latent hazard in equal measure. Convenient, because an account can be documented with the materials a transaction naturally generates. Hazardous, because the account owner’s entire entitlement is the sum of those fragments — and fragments can conflict, omit, or fail to say the one thing that mattered. The disciplined practice is to designate a master governing instrument for each account that consolidates or expressly ranks the fragments, so that no one ever has to litigate which document governs.

Two anchors are fixed by statute and cannot be drafted away. The governing instrument is governed by the law of the jurisdiction, and its parties submit to the jurisdiction’s courts. And any provision of a governing instrument (or contract) relating to the segregation of assets or liabilities is governed by and construed in accordance with the Act itself — the parties may not contract otherwise. The walls, in short, are not negotiable; almost everything inside them is.

The Defaults Are Generous — to the Company

The statute supplies an extensive default rulebook that applies unless the governing instrument provides otherwise, and the direction of those defaults deserves an investor’s close attention: they run, almost uniformly, in favour of the company’s flexibility. A person becomes an account owner, and becomes bound, by complying with the instrument’s conditions of participation. An owner takes the interest stipulated for him — and absent stipulation or other compelling indication, the extent of his interest is nil. If no other management arrangement is specified, the company manages the account, may appoint and supervise officers, managers and employees for it, and may charge fees, disbursements and other costs to the account.

Then come the powers. Unless the instrument says otherwise, the company may amend the governing instrument itself; appoint one or more managers; sell, lease, exchange, transfer or pledge all or any part of the account’s assets for the account’s benefit; wind up the account’s affairs in an orderly way and terminate it; create new classes, groups or series of account holdings that were not previously outstanding; create further segregated accounts and transfer assets, liabilities, profits or losses of the existing account into them — converting owners’ interests along the way; and grant or withhold voting rights to or from all or certain owners, on a per-capita, financial-interest, class or any other basis. All of this, on the default setting, without the vote or approval of any particular owner or class. Read that list once as a sponsor and it is a menu of welcome flexibility. Read it again as an investor and it is a list of everything that can be done to your position without asking you. Both readings are correct — which is precisely why the governing instrument, not the statute, is where investor protection is won or lost.

What Investors Should Negotiate

The practical corollary writes itself. A sophisticated account owner — an anchor investor in a fund account, a family patriarch settling assets into a family SAC, a joint-venture partner taking an account interest in a development — should treat the default rulebook as a term sheet to be negotiated, not a background hum. The interest itself must be stipulated with precision: percentage, class, distribution entitlement, and what happens on new issues. Amendment of the instrument should require defined consent thresholds, at least for provisions touching economics, transfers out of the account, and the creation of further accounts into which the owner’s interest could be migrated. Voting rights should be granted expressly, with the statute’s full machinery — notices, record dates, quorums, proxies, action by written consent — configured rather than left silent. Management arrangements, fee bases and expense allocation deserve the same scrutiny they would receive in a fund’s limited partnership agreement, because they perform the same function. And exit deserves design: the owner’s statutory right to inspect the account’s records and receive its financial statements at least annually is a floor, not a ceiling — reporting frequency, valuation methodology and termination mechanics belong in the instrument.

Duties Dialed Up or Down

One feature of the regime elevates the drafting stakes further: fiduciary settings are themselves adjustable. To the extent the company or a manager owes duties — including fiduciary duties — to the account, its owners or its counterparties, those duties and liabilities may be expanded or restricted by provisions in the governing instrument, and a company or manager acting in good-faith reliance on the instrument’s provisions is not liable to a party to it for that reliance. The regime likewise permits officers to act on both sides of internal transactions between accounts notwithstanding conflicts, within a safe harbour of written disclosure plus instrument authorisation or majority owner consent. And the Act deliberately curates its trust-law backdrop: trust rules are generally excluded from the regime, but tracing in law and equity, and constructive-trust remedies, are preserved where assets are commingled. The composite message is that the standard of conduct an account owner can expect is, to a remarkable degree, whatever the governing instrument says it is. Instruments drafted by sponsors will restrict duties; instruments negotiated by investors will preserve or expand them; silence hands the question to defaults and litigation. There is no neutral drafting — only drafting whose beneficiary has been chosen deliberately or by accident.

The Counterparty Side: Contracts

The governing instrument’s sibling is the counterparty contract, and its rules are leaner because its function is narrower. Every written contract governing a transaction — including contracts executed abroad — must include the name of the counterparty, and unless it provides otherwise is treated as selecting domestic governing law and submitting to the domestic courts. Most importantly, as Article 4 explained, every contract pertaining to a transaction is deemed to contain a statement that the counterparty’s rights do not extend, and the counterparty has no recourse, to assets linked to any other segregated account or to the general account — a wall written into the deal automatically, displaceable only by express written agreement executed by parties with authority over the accounts being exposed. For counterparties, the drafting discipline is therefore the mirror image of the owner’s: identify the account in every document, confirm the assets actually linked to it (recourse is only as valuable as the pool behind it), and where the transaction genuinely requires cross-account or general-account support, negotiate it explicitly and verify the authority of those granting it.

Drafting Disciplines for Practice

Pulled together, the working checklist for any Jamaican SAC engagement runs as follows, in prose because each item is a judgment rather than a tick-box. Designate the master instrument and rank the fragments. Stipulate every owner’s interest expressly, remembering the nil default. Configure amendment, and fence the powers that can restructure an owner’s position — further accounts, conversions, new classes — behind appropriate consents. Grant and machine the voting rights. Settle management, fees and expenses as if drafting a fund agreement. Set the fiduciary dial consciously, and paper the conflicts safe harbour for anticipated internal transactions. Provide for reporting beyond the statutory floor, for record dates and distribution mechanics (remembering that a declared distribution converts the owner into a creditor), and for termination — including how the account’s assets are realised and distributed pro rata after creditors. Choose the dispute forum, using the arbitration route the Act provides for internal disputes where confidentiality matters. And on the contract side, identify the account, always, in every document — because Article 7, next in this series, will show exactly what happens to directors when that discipline slips.

Frequently Asked Questions

What is a governing instrument in a segregated accounts company?

It is the document — or set of documents, including agreements, prospectuses, resolutions, registers and electronic records — that sets out the rights, obligations and interests of account owners in respect of a segregated account. It functions as the account’s private constitution, governed by domestic law with the parties submitting to the domestic courts.

What happens if the governing instrument doesn’t state an owner’s interest?

Under the regional model, an account owner takes the interest stipulated for him, and absent stipulation or other compelling indication the extent of his interest is nil. Precise stipulation of each owner’s interest is therefore the single most important drafting task in the structure.

What can the company do by default under a governing instrument?

Unless the instrument provides otherwise, the company may amend the instrument, appoint managers, deal with account assets for the account’s benefit, wind up the account, create new classes of holdings, create further accounts and migrate assets and interests into them, and grant or withhold voting rights — all without the approval of any particular owner. Investors who want a say must negotiate for it.

Can fiduciary duties be changed in a SAC?

Yes. The company’s or a manager’s duties and liabilities — including fiduciary duties — may be expanded or restricted by the governing instrument, and good-faith reliance on the instrument is a defence. Trust rules are generally excluded from the regime, though tracing and constructive-trust remedies survive where assets are commingled.

What must counterparty contracts with a SAC contain?

Every written contract governing a transaction must name the counterparty and, unless otherwise agreed, is treated as governed by domestic law. Each contract is also deemed to state that the counterparty has no recourse to any other account or the general account — broader recourse requires express written agreement by parties with authority over the exposed accounts.

Who should draft or review a governing instrument?

Both sides, deliberately. Sponsor-drafted instruments will favour flexibility; investor-negotiated instruments will fence the powers that can restructure a position. Because the statute’s defaults decide everything left unsaid, off-the-shelf documents are a false economy — the instrument deserves the same rigour as a fund’s constitutional documents.

How can Dawgen Global help?

Dawgen Global supports governing-instrument architecture for sponsors and review for investors: interest stipulation, amendment and consent design, fiduciary settings, distribution and termination mechanics, and the contract-side account identification protocols that protect directors. Contact [email protected] to discuss your structure.

Previously in the series: Article 5 — The Gateway: Regulators, Consents and the Path to SAC Registration in Jamaica.

Next in the series: Article 7 — Directors Beware: Personal Liability and the Disclosure Discipline Every SAC Board Must Master.

This article is provided for general information and is not legal or tax advice. Specific structures should be verified against the current text of the Segregated Accounts Companies Act, 2024, its regulations, and the requirements of the relevant Jamaican regulators.

About Dawgen Global

Dawgen Global is an independent, integrated multidisciplinary professional services firm headquartered at 47 Trinidad Terrace, New Kingston, Jamaica, serving more than 15 territories across the Caribbean. Founded and led by Dr. Dawkins Brown, Executive Chairman, the firm is independent and not affiliated with any international network. It delivers a full suite of professional services under one roof: audit and assurance; tax advisory; IT and digital transformation; risk management; cybersecurity; actuarial and insurance regulatory advisory; HR advisory; mergers and acquisitions; corporate recovery; business advisory and strategy; accounting BPO and virtual CFO services; and legal process outsourcing.

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