Vesttoo case: Committee of creditors approved to conduct legal discovery

The committee of unsecured creditors in the Chapter 11 bankruptcy case of insurtech Vesttoo has now been approved to begin conducting legal discovery on the company after the judge issued an order approving discovery at a hearing yesterday.

Lawyers at a Delaware bankruptcy court hearing held yesterday called it the committee’s statutory obligation to conduct an investigation into potential claims arising out of the fraud at Vesttoo.

The lawyers explained that the Committee of Unsecured Creditors had reached an agreement with the debtor, Vesttoo, on language for an order that would allow legal discovery to begin and that would not affect the ongoing litigation against some of those accused of the fraud in Israel.

The judge said she had no objections to the order and so it has been filed, meaning the creditors may now begin an investigation into the fraud and gain access to a significant amount of documentation and electronic records from Vesttoo, to assist them in understanding what happened, how impacted creditors have been by the fraud and what, if anything, might be available for claims and recoveries.

As a reminder, the official Committee of Unsecured Creditors, in the Vesttoo Delaware Chapter 11 bankruptcy case, are: Clear Blue Specialty Insurance Company and its subsidiaries; Porch Group (on behalf of Homeowners of America Insurance Company); Markel Bermuda Limited; Proventus Holdings LP (a Corinthian Group entity); and United Automobile Insurance Co.

This group does not include broking giant Aon or its White Rock SAC structure, which are pursuing Vesttoo through the Chapter 15 and Bermuda Supreme Court cases.

The ability to conduct legal discovery on Vesttoo’s business had also been requested under those actions, but so far no order had been approved, meaning the committee of creditors is the first to gain this approval so far.

The discovery approved is extensive, including gaining access to all of the documents from the internal fraud investigation that Vesttoo’s Board had commissioned and that drove the release of the initial report findings that identified two of the co-founders and other investment sourcers as allegedly complicit.

The creditor committee’s lawyers will also get access to: an explanation of the methodology behind the investigation; all witness statements and interview notes from the investigation; access to attend future interviews; the ability to interview interim Vesttoo CEO Ami Barlev and request to interview other Vesttoo employees; access to all documents created prior to the Chapter 11 case beginning; access to digital records from devices that were collected for the investigation; details of any supplemental investigation report in advance of it being filed under the Chapter 11 case; and advance visibility of any upcoming legal claims for relief in any country where legal action is ongoing.

It’s an extensive list of information and the access now being given will enable the creditors to at least validate the findings of the internal investigation, look more deeply into evidence related to their own reinsurance deals and any potential claims they may want to make to try and recover value linked to them, and importantly to derive what value may still exist.

What’s not clear, is how much (if any) access the legal discovery will give creditors to investigate dealings related to any third-party managed structures that Vesttoo facilitated reinsurance deals were undertaken in, beyond Vesttoo’s own documentation.

It is progress though, despite the fact not all creditors are joined in this legal discovery action.

On the Chapter 15 and Bermuda actions, involving Aon’s White Rock SAC, yesterday’s hearing in the Chapter 11 case saw a number of issues adjourned until a to be defined later date, including the issue of the automatic stay and whether it has been violated.

So there does appear to have been some work to agree on matters between parties involved in the bankruptcy case and the White Rock cell related action in Bermuda, which is also a sign of some progress being made between parties.

It’s unclear why all potential creditors to Vesttoo have not joined the committee at this time though, with other parties that were said exposed to the fraudulent letters of credit (LOC), such as Chaucer and Beazley, plus Aon and its White Rock and any of their clients, not joining that grouping so far.

It’s possible that in the case of Aon, they still feel they can achieve remedies for their clients more easily by focusing on the specific structures where their reinsurance transactions were housed. We should state, it’s not clear at this time whether cedents such as Beazley and Chaucer were clients under the Aon structure, or another vehicle.

Vesttoo provided a statement to us, stating that it will provide assistance where required to the legal discovery process.

“Vesttoo will be fully collaborating with the Committee of Unsecured Creditors in their discovery, as customary in Chapter 11 proceedings. The committee will also receive all of the findings of the rigorous, independent investigation conducted by Kroll and DLA Piper. We are looking forward to working together with the committee going forward in order to reach the best outcome for all stakeholders,” the company explained.

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