Vesttoo files for insolvency relief in Israel, seeks to ward off prior legal actions

Alongside its filing for Chapter 11 bankruptcy protection in the United States, under-fire insurtech Vesttoo has also filed for insolvency relief under the Israeli court system.

As we reported earlier this week, the beleaguered insurtech filed for Chapter 11 bankruptcy protection in the United States, as the company seeks “breathing room” to allow it the time to pursue legal action against those it feels are responsible for the crisis it faces, while also likely seeking protection against the legal action it faces from others.

Of course, while Chapter 11 does afford protection, it does not stop the process of legal discovery occurring and now any legal activity against Vesttoo will fall under the bankruptcy proceeding, instead of being pursued individually.

The bankruptcy move did put a stay on specific legal action begun by broker Aon’s White Rock Insurance SAC company against Vesttoo, but this will likely now proceed as part of the bankruptcy proceeding, with White Rock SAC likely to become one of the creditors to it.

It’s now become apparent that Vesttoo has sought similar relief in Israel, seeking ancillary relief under that country’s Insolvency and Financial Rehabilitation Law.

Israel’s bankruptcy laws were amended to have a focus on rehabilitation a few years ago, but effectively the process will be similar to Chapter 11, affording protection, but also bundling creditor claims under a single managed procedure, rather than numerous disparate claims being filed against Vesttoo.

The court in Israel has been asked to recognise the Chapter 11 case as foreign proceedings, so as to protect the assets of Vesttoo entities within that country as well.

It would mean Vesttoo’s entities overseas can act as representatives in both countries bankruptcy proceedings, consolidating and aligning the process, which should be positive for creditors too, protecting what assets and value can be made available to them.

The US bankruptcy court has been asked to approve a motion to allow this coordination of the proceedings in the United States and Israel.

Separately, under the Chapter 11 proceedings, Vesttoo has also requested a motion be approved to protect the personal information of current and former employees, as well as individual equity holders in the company, which it said was to “avoid exposing these individuals to potential identity theft or jeopardizing their safety by publishing their information.”

Under bankruptcy laws, Vesttoo will have to publish a list of its equity security holders, including their address or place of business. But Vesttoo aims to limit this to only apply to holders of 5% or more of its equity.

Finally, another piece of Chapter 11 procedure has also been requested, with a motion filed asking the court to stay, restrain, or enjoin all parties from commencing or continuing any legal or judicial action that was or could have
been initiated before the Chapter 11 case began, or to collect, enforce, or recover a claim against Vesttoo and its entities that arose before the Chapter 11 procedure began.

Which appears a further effort to halt, hamper, or ward off any legal actions that began before the Chapter 11 filing.

Although, as we stated above, all those prior actions will now have their day in court under the Chapter 11 proceedings anyway and as part of that Vesttoo will be required to provide the discovery, in terms of necessary transparency and disclosure, that had been sought by parties such as Aon.

Vesttoo’s most recent statement said the company remains focused on identifying the parties, now said to be external to it, that were the source of the fraud and that findings from its own audit and investigation will be released in due course.

Unless Vesttoo can clearly highlight the external parties that masterminded the use of fraudulent letters of credit (LOCs) in reinsurance transactions it had been involved in, identify them, and give others a reason to focus their claims for restitution of funds elsewhere, it’s hard to see the insurtech coming out of bankruptcy with a viable business no matter how much legal protection the courts afford.

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