Vesttoo case: Settlement agreement closer, as creditors and JPL’s near compromise

Creditor parties in the bankruptcy of insurtech Vesttoo are much closer now to an agreement on the settlements that had provisionally been reached, as well as on the plan of bankruptcy and liquidation, so hope has emerged that sides may find a common ground and the process could then move forwards at pace.

The Official Committee of Unsecured Creditors in the Vesttoo bankruptcy had reached proposed settlement agreements with a number of cedents that had been affected by the letter of credit (LOC) reinsurance collateral fraud that has occurred.

As we reported last week, the joint provisional liquidators (JPL’s) to the cells of the Aon White Rock SAC vehicle that were affected by the Vesttoo LOC reinsurance fraud had objected to settlements reached between bankruptcy creditors, saying care must be taken to ensure constructive trust claims are respected and those entering into settlements do not receive preferential treatment.

Now, it’s become clear that the Official Committee of Unsecured Creditors, the cedents and the JPL’s have all been working to find a resolution and a way forward, with an agreement on a settlement compromise now seen as very near.

The counsel for the Committee of Creditors said yesterday at a hearing of the Delaware bankruptcy court that an agreement between the Committee and JPL’s is expected to be reached, which would result in a resolution to support the bankruptcy plan and a slight adjustment to the settlement agreement for cedent Chaucer.

Positively, counsel for the Committee said during the hearing that another $19.7 million of cash is expected to now be available for the bankruptcy estate, having come into Vesttoo’s account on Sunday.

Together with the cash already known to be available, this means the debtors Vesttoo may have $27.8 million of cash, in addition to the cash that may be set aside for other claims. Previously the amount had been assumed to be $6.3 million.

That additional $19.7 million has come in after commutation of a transaction with ReAlign, we understand.

We also understand that there are other transactions and potential commutations of reinsurance deals being worked on, including one involving Hannover. It’s not clear whether these could bring more funds to the bankruptcy estate at this time, or simply release more funds to cedents with constructive trust claims over any funds.

Previously, there were also collateralized reinsurance transactions involving an Alize ILW, Palomar, iM3NY, Baupost and Convex mentioned in court filings as still having potential funds available, either for the cedents themselves where they have constructive trust claims, or for the estate. But, the latest status on these transactions and any additional funds that can be recovered is also unclear at this time.

It seems the bankruptcy plan, if agreed, will allow for constructive trust claims to be pursued for any outstanding, or otherwise, transactions that continue to have cash available in cells and linked accounts, especially where those were premium payments.

The judge said that the court needs to wait to see a final agreement between the Committee and the JPL’s, before the bankruptcy plan can be confirmed.

That final agreement between the Committee and the JPL’s has now been reached and filed with the Delaware bankruptcy court, although it has not yet been formally approved by the judge.

As a result, the hearing will be taken up again later today, where a further update on the now known to be successful negotiations between the parties will be heard and the judge may take a decision on approving the latest proposed order confirming the latest Chapter 11 bankruptcy plan.

Also during yesterday’s hearing, the court were told that the settlement agreements are seen as in the best interest of creditors, bringing in funds to the bankruptcy estate and freeing them to chase what were termed as “the whales” in litigation.

There was no suggestion of who those “whales” may be, but it suggests that once this bankruptcy case is dealt with the estate liquidated and disbursements made, direct litigation may ensue.

With parties close to finding a common ground, a way forwards looks imminent and finally the bankruptcy and liquidation of Vesttoo may be able to proceed, to the benefit of creditors involved.

Court action in Bermuda may ramp up again, under the JPL’s case, as filings suggest a Bermuda court approval may be needed for the agreed settlements to be made, with the bankruptcy court likely to be asked to rule on whether such an approval is legally required, or not, although the JPL’s may argue that it is essential.

That seems to be because Bermuda has jurisdiction over the segregated accounts linked to the transactions the settlements relate to, which are of course part of a Bermuda vehicle, hence a court approval may be required before settlement distributions can be made.

If agreement can be reached on the settlements, under the terms being negotiated, it seems the creditors and JPL’s will all be in a position to move forwards and confirm the bankruptcy plan as well, which absent any other objections could then be enacted at some pace, it seems.

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