Chaucer: Vesttoo bankruptcy plan “unconfirmable” with “numerous material issues”

International specialty insurance and reinsurance group Chaucer has responded robustly to objections made by other creditors after its recent entry to the Vesttoo bankruptcy case, saying that the proposed bankruptcy plan has numerous issues and is “uncomfirmable.”

Chaucer had recently entered the fray related to the letter of credit (LOC) in reinsurance fraud perpetrated by senior executives of insurtech Vesttoo.

Chaucer formally entered the Vesttoo bankruptcy case in January, having filed its appearance and registered a $257 million claim against the estate.

It appears Chaucer is seeking to protect the specific segregated cells that were used for its reinsurance transactions with insurtech Vesttoo, to prevent any value leaking to claims made by other creditors to the bankruptcy case.

It remains clear that a major difference of opinion in the bankruptcy estate is related to the ownership of segregated cells and their contents.

Which was further evidenced this week, as the Official Committee of Unsecured Creditors to the Vesttoo bankruptcy case accused Chaucer of “lying in wait” before launching efforts to secure certain sources of value for itself.

The Committee of Unsecured Creditors said Chaucer was too late to sway the decision on the bankruptcy plan, urging the court to let the vote on the plan proceed and stand and to ignore Chaucer’s claims related to a specific segregated cell and Vesttoo debtor vehicle. Porch Group and Markel had both also filed objections to Chaucer’s entry to the case, which they deemed as late.

Now, Chaucer has responded to the creditor committee, Porch Group and Markel, saying that their claims that the bankruptcy plan is positioned for imminent approval and that creditors are set to support it, are not accurate reflections of the current status of the case.

“Neither description accurately reflects the true status of these Bankruptcy Cases. The Proposed Disclosure Statement and Plan has been vigorously objected to by almost every active participant in these cases, and the purported overwhelming support of creditors ignores that, with respect to Bay XXIV and at least 40 other Debtors, the plan proponents themselves (none of whom, Chaucer contends, have valid claims at Bay XXIV) are the only votes in favor of their Proposed Disclosure Statement and Plan,” Chaucer’s filing states.

Chaucer continued to state, “The reality is that the Creditors’ Committee has proposed a plan that is unconfirmable on its face as a result of numerous material issues with the plan’s construction.”

The specialty re/insurer explains that this includes issues that had been raised by the Debtor itself (Vesttoo), but had been largely ignored by the Creditors’ Committee.

Again, Chaucer raises its opposition to the bankruptcy estate being consolidated, saying, “As a result of pushing forward with, among other things, its attempt to achieve de facto substantive consolidation in these Bankruptcy Cases, the Creditors’ Committee has faced substantial resistance and has substantial work to do to position a modified plan for confirmation.”

The bankruptcy court Confirmation Hearing has been pushed back by over two weeks, as a result of the recent case filings and inability to agree on a way forwards among different creditor constituents.

Chaucer said that it expects this will be further adjourned, given the committee has not shown any appetite to modify the plan at this stage.

Chaucer also notes that the adjournment of the hearing shows that its objection to it was “timely filed.”

“Given the Creditors’ Committee’s adjournment, the currently scheduled February 22nd Confirmation Hearing will occur 31 days after Chaucer filed its January 22nd Motion and Omnibus Claims Objection,” the re/insurer’s filing states.

Chaucer explains its other issues with the response its entry to the case and objection it filed, saying, “Whether or not the Omnibus Claims Objection itself is favorable to the plan proponents— nearly the entire focus of the Objections—misses the point. The lack of any prejudice as a result of Chaucer’s delay strongly weighs in favor of granting Chaucer’s motion.”

Referring to its claim to funds held in a specific Vesttoo vehicle, the company also said, “The simple reality is that it is undisputed that Chaucer was the only cedent that did business with the Bay XXIV Debtor and that the cash currently in the Bay XXIV Debtor’s possession was fraudulently obtained entirely from Chaucer. Chaucer’s desire to protect its interest in cash fraudulently obtained from it, and that it believes is subject to a constructive trust for its benefit, is in all respects a good faith exercise of its rights.”

Chaucer again points to its desire to achieve a settlement with an as yet unnamed party, which having not made progress on drove the company to file to enter the bankruptcy fray.

Saying, “Chaucer’s hesitation in appearing in these cases was in fact the result of a reasonable, good faith desire to allow the Joint Provisional Liquidators (the “JPLs”), as fiduciaries for all of the cedents (including Chaucer, of course), an opportunity to represent the cedents’ interests generally and to achieve an acceptable settlement with an active non-Debtor participant in these Bankruptcy Cases that would address Chaucer’s more unique concerns (e.g., by such non-Debtor participant in Chaucer’s Reinsurance Transactions accepting responsibility for collecting the Premium Payments made by Chaucer).”

Interestingly, the JPL’s have also filed a limited joinder to Chaucer’s objection, but only agreeing with Chaucer’s objections to others’ claims against the specific Bay XXIV Debtor, but not to the JPL’s own claim against that structure.

All of which suggests that the bankruptcy case of Vesttoo continues to see a significant disagreement between creditor parties, that could further prolong the court action.

At the same time, as we reported on Friday, broker Aon has proactively set aside funds for potential legal settlements, which could point to a chance of a speedier process, if a common ground to settle and agree on a way to finalise and disburse the bankruptcy estate can be found, between all the parties involved. How realistic that is though, remains to be seen.

Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.