Vesttoo case update: JPL’s & White Rock seek clarity to attend Bermuda hearing

The Vesttoo bankruptcy case continues and the date for a hearing in the Bermuda Supreme Court over the liquidation of cells linked to Aon intellectual property reinsurance transactions also nears, and now the joint provisional liquidators and Aon’s White Rock Insurance (SAC) Ltd. are seeking clarity over whether they can attend the hearing, without violating the stay order.

The latest filings from the Delaware Chapter 11 bankruptcy case show that there appears to be a widening difference of opinion between the Official Committee of Unsecured Creditors, featuring Clear Blue, Porch insurer Homeowners of America Insurance Company, Markel Bermuda Limited, Corinthian Group’s Proventus Holdings, LP, and United Automobile Insurance Co., and the joint provisional liquidators to Aon’s White Rock Insurance (SAC) Ltd.

As we reported before, the creditors and White Rock’s JPL’s differed over the subject of the cells linked to Vesttoo reinsurance deals, the automatic stay and who should have the right to perform legal discovery on Vesttoo and its business.

The interim automatic stay was then enforced again, and it was agreed that no legal discovery would be undertaken in the case, except in limited circumstances.

Which put the case in the same position it had been some weeks earlier, with little to no progress actually made in helping those out of pocket to identify whether any recoveries can be made after the fraud involving reinsurance collateral letters of credit (LOC).

In the meantime, Vesttoo itself is attempting to claw back funds from those alleged to be involved in the fraud, but it’s not clear how or if that money would be used (Vesttoo said it would follow the Tel Aviv courts’ direction), or if it can even be recovered.

At the same time, there remains a pending case in the Bermuda Supreme Court, as the JPL’s on behalf of the Bermuda Monetary Authority (BMA) and Aon seek to liquidate the segregated cells in the White Rock Insurance (SAC) Ltd. vehicle that had housed reinsurance deals where Vesttoo had been involved and to which fake letters of credit (LOC) were linked.

That Bermuda court hearing is due on September 29th, but now the JPL’s have asked the bankruptcy court to clarify if they are even able to attend, or whether the interim automatic stay order precludes them from doing so.

The JPL’s say that they “do not believe such clarifications are necessary,” but that the debtors (Vesttoo) and the creditor committee are asserting that the JPL’s should not be able to attend the Bermuda court, even though they were assigned to that case, so the JPL’s are seeking “clarifications out of an abundance of caution.”

Recall that Aon, via its White Rock SAC vehicle, was pursuing beleaguered insurtech Vesttoo for reparations, after letters of credit (LOCs) backing collateralized reinsurance deals were alleged to be fraudulent or forged, seeking a $136.7 million return of funds from impacted cells.

After which, Aon through its White Rock Insurance (SAC) Ltd. company joined forces with the Bermuda Monetary Authority (BMA) to pursue “maximum recovery” for the re/insureds affected by the alleged fraud involving Vesttoo related segregated accounts, agreeing for the Bermuda Supreme Court to appoint Charles Thresh and Michael Morrison of Teneo (Bermuda) Limited to act as Joint Provisional Liquidators (JPLs) for White Rock Bermuda with respect to the impacted Vesttoo Cells.

The upcoming September 29th hearing in Bermuda is the next stage in that action and it is a public hearing, meaning representatives of the debtors and the creditor committee can attend.

The Bermuda hearing is supposed to see it decided whether the court will pursue a winding up order for the cells in question, or a further adjournment.

Because of the implications of the interim stay order of the Delaware bankruptcy court, the JPL’s are seeking clarification that they can attend this Bermuda court action and relief related to the stay order to allow them to do so.

Interestingly, the JPL’s say they have conferred with the debtors (Vesttoo) and the committee of creditors, but neither would agree to the relief being requested.

They state, “Incredibly, according to the Vesttoo Debtors and the Committee, under the current circumstances they and their constituents may attend and participate in the public Bermuda Hearing, but the JPLs may not. Such a position makes no legal or common sense.”

Which all comes back to the disagreement over the way legal action is conducted related to the White Rock cells, as Vesttoo and the creditor group continue to push for all action to fall under the bankruptcy court, where as the Aon-linked action continues to push for a faster liquidation and restructure to try and recover any value remaining for their clients.

Remember that there could be premium funds linked to these cells and the question now comes down to whether those funds should be recovered solely for the benefit of Aon’s clients, or be subject to the entire bankruptcy process, like any other assets linked to Vesttoo are likely to be.

Hence, the ownership question related to the cells that came up right at the start of this legal battle, where Vesttoo claimed ownership of them and said they should fall within its bankruptcy estate.

The JPL’s were appointed by the Bermuda Supreme Court, so not being allowed to attend this hearing when the debtors Vesttoo and the creditors are, perhaps seems a little unusual.

The JPL’s say their attendance would be “in full compliance with the Interim Stay Orders,” but, they are seeking bankruptcy court clarity to ensure their attendance would be viewed in such a way.

As it seems likely, if the JPL’s did attend without this clarity, one of the other parties would likely object and again say the stay order was being violated.

It seems reasonable to expect they can appear in the Bermuda court, a court proceeding to which they had originally been appointed.

However, with these segregated cells still in focus for both sides in the legal action, seemingly as there is some dispute over who should benefit from any recovery made from them (the cedents they were originally set up for, or the entire bankruptcy creditor pool), it’s no surprise the JPL’s are being cautious and ensuring their attendance at the Bermuda hearing aligns with the thinking of the Chapter 11 court.

White Rock itself has enjoined the JPL’s request for clarity over attending the Bermuda court hearing this week.

Of course, while this legal back and forth continues, the courts are no closer to recovering any value for any of the creditors involved.

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