Vesttoo creditors, Chaucer settle over $18.9m funds & segregated cell ownership

Another settlement has now come to light thanks to the mediation between Vesttoo bankruptcy creditors, with specialty insurance and reinsurance group Chaucer and the Official Committee of Unsecured Creditors agreeing a way forwards over $18.9 million of value attached to debtor entity Vesttoo Bay XXIV and importantly it appears also on a way forward for the segregated cell issue.

As we reported yesterday, the mediation attempts, which are now completed, appear to have been successful, with a number of settlements now said to have been reached.

The first settlement to come to light was between the Official Committee of Unsecured Creditors in the Vesttoo bankruptcy case and fronting specialist Clear Blue Insurance, which saw an agreement reached on the proposed bankruptcy plan and in relation to funds held in one of the debtor vehicles, Vesttoo Bay XIV Limited.

Now, specialty re/insurer Chaucer has settled with the creditor committee, over the Vesttoo Bay XXIV vehicle that had been used for collateralized casualty reinsurance quota shares it had entered into that had been backed by now known to be fraudulent reinsurance collateral supplied by Vesttoo.

Chaucer had recently entered the bankruptcy case related to the letter of credit (LOC) in reinsurance fraud said to have been perpetrated by senior executives of insurtech Vesttoo.

Chaucer was 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.

The issues led Chaucer to say that the proposed bankruptcy plan had numerous issues and is “uncomfirmable.”

But those issues appear to have been worked through successfully, with this mediated settlement agreement now reached over the specific structure used to house the reinsurance transaction collateral and premiums, it now seems.

Chaucer and the Official Committee of Unsecured Creditors to the Vesttoo bankruptcy have agreed that the funds remaining in the debtor vehicle will be largely handed back to the specialty re/insurer.

The debtor structure, Vesttoo Bay XXIV Limited is said to hold $18,848,469.10 in cash, which Chaucer claims it is the only or primary creditor to and that it has a constructive trust over the Vesttoo Bay XXIV cash, so is entitled to all of it.

Under the settlement agreement now reached, Chaucer will be entitled to an amount equal to the greater of wither $15,549,987.01 or 82.5% of the funds held by Vesttoo Bay XXIV at the date of distribution, which would be after the bankruptcy plan is confirmed.

That would be “in full and final settlement of Chaucer’s asserted constructive trust over the Vesttoo Bay XXIV Cash and any other assets of the Debtors,” so suggesting that Chaucer would walk away from the liquidation with just that value in hand.

Given the limited nature of cash in Vesttoo structures, which is known to be depleted, plus the expectation that legal expenses are going to soak up a significant amount of what is left, this may be a shrewd move.

Under the agreement, the assets of the Chaucer cell (White Rock T108) will not be considered part of the debtors estate, which is an interesting turn of events given the arguments over ownership of segregated cell contents and linked assets that has been an undercurrent to this whole saga and court case since the beginning.

The agreement states that “neither Chaucer nor any of its affiliated entities waive any claim against or other right with respect to the Chaucer Cell or any property of the Chaucer Cell.”

Which it appears would mean that any other value linked to the segregated cell would be available to Chaucer as the cedent to the transaction it housed.

Chaucer will have to waive all rights to the liquidation of Vesttoo’s estate though and won’t be able to start additional claims against the estate via any other court process, such as the Joint Provisional Liquidators action in Bermuda, it seems.

The agreement will also see Chaucer withdrawing its objection to the proposed bankruptcy plan and the specialty re/insurer agreeing to support it. which looks set to be a stipulation of any successful mediation driven settlements.

We don’t know whether there is value remaining in the White Rock cell that housed Chaucer’s transactions that were affected by the Vesttoo LOC fraud, but it seems likely that there is, else why stipulate in the agreement that Chaucer retains its claims and rights over it.

For cedents that were exposed to the Vesttoo reinsurance collateral fraud this seems a positive step forwards, in setting a precedent for the kind of settlement agreement that can be reached, while also answering one of the key sticking points from the case.

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