Vesttoo calls for US bankruptcy case to be dismissed

Insurtech Vesttoo, the company at the heart of a scandal over fraudulent reinsurance letters of credit (LOC), has called for its ongoing US Chapter 11 bankruptcy case to be dismissed and for insolvency proceedings to be commenced in Israel in its place.

Vesttoo and all of the affiliated debtor entities have filed an objection to the Chapter 11 bankruptcy plan proposed to the Delaware court by the Official Committee of Unsecured Creditors.

Vesttoo aren’t the only party in disagreement, as we reported yesterday.

A number of creditors, outside of the official committee, have filed their objections to the plan of bankruptcy and liquidation.

As we explained in that article, the key focus in the bankruptcy case remains related to the ownership and rights to the contents and any value remaining in the segregated cells and linked accounts or trusts, that had been used for collateralized reinsurance deals where Vesttoo facilitated the arrangements and provided collateral that turned out to be forged and so have zero value.

While that disagreement, over consolidation of the bankruptcy estate or the segregation and assignment of assets to cedents and beneficiaries of specific cells used for reinsurance deals, looks set to continue to be a key focus for parties with interests in the bankruptcy case, Vesttoo itself just wants to shut the current US court case down, so the beleaguered company can be heard and liquidated in a court in Israel instead, we’ve now learned.

A filing from Vesttoo and its fellow debtor entities states, “The Debtors filed these cases to maximize the value of their estates through, among other things, attempts to enter into a sale transaction for the Debtors’ business assets and litigation against fraudsters based on the Debtors’ robust investigation into prepetition fraud committed by certain of the Debtors’ founders and other bad actors.

“As this case has evolved, the Debtors are now in a wind down. As a result, the Plan cost-structure, coupled with the risks of non-recognition in Israel and the related issues identified in this Objection, lead to a singular conclusion: the time has come for these cases to be dismissed so that more efficient insolvency proceedings can be filed in Israel.”

Vesttoo and its entities state that several problems have been identified with the bankruptcy plan submitted by the committee of creditors that prevent its confirmation.

Most significant is said to be the fact “The Plan creates issues in Israel that… result in mistreatment of Israeli creditors in a way that violates principles of comity,” they explain.

Interestingly, the filing from Vesttoo also raises the subject of consolidation of the estate, versus segregation, saying that while the plan proposes liquidation of the insurtech and its entities, as well as a distribution of net proceeds to creditors, “It is not clear from the Plan whether these distributions will be on a substantively consolidated based or on a debtor-by-debtor basis in a way that will respect the corporate form.”

The debtors further state on this subject, “This Court should not approve the Plan Supplement by confirming the Plan unless and until the Committee includes an adequate mechanism to ensure the Wind Down Advisory Board Members cannot engineer the Liquidating Trust and Wind Down Debtors to only benefit their own interests and use their very large claims,43 multiplied by 49 times (as exacerbated by the doubling claim mechanism from allowing those parties to assign claims to the trust to further gross up their claim entitlement), to soak up an extremely large percentage of all distributions made under the Plan.”

Having attempted to secure a sale of some technology assets and intellectual property, a move that failed to proceed after a buyer backed out, Vesttoo says, “The Debtors are essentially already in a liquidating wind down, which, as explained below, likely could be accomplished on a much cheaper basis in an Israeli liquidation than under the Plan.”

Adding, “Nothing in the Plan or the Plan Supplement provides an indication of the costs of the wind down under the Plan. In the Debtors’ business judgment, an Israeli liquidation would be both cheaper and in the best interests of the creditors.”

The debtors, Vesttoo, perhaps see the potential for a significant disagreement to begin over the issue of asset segregation versus consolidation of the bankruptcy estate, which has the potential to tie up their Chapter 11 process in the US for a longer period of time.

With so many parties now engaged in the bankruptcy case, it’s hard to see how there would be broad agreement to shutter the proceedings and refocus them in Israel.

While there is clear disagreement over how to proceed, among creditor parties and the debtors, there may be even more uncertainty created by moving the liquidation to another court.

It’s interesting that the debtor itself, Vesttoo, has also raised the subject of consolidation versus segregation, in how assets and value of the bankruptcy estate are apportioned, once again confirming that this is perhaps the key topic that needs resolving, one that has potentially wider ramifications for the market and as a result could prove very difficult to decide.

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