Vesttoo case: Time to “stop litigating and start cooperating” says bankruptcy judge

The judge in Vesttoo’s Chapter 11 bankruptcy case has called for all sides to “stop litigating and start cooperating” to find a common ground on key issues that have been holding back progress at a hearing yesterday.

Meeting to discuss whether the joint provisional liquidators (JPL’s) to the segregated cells of Aon’s White Rock SAC should be able to attend a Bermuda court hearing without fear of violating the stay that has been imposed, Judge Mary F Walrath concluded that they should, as long as they take no action that would violate it.

As we reported yesterday, the battle over control of and access to segregated cells used for Vesttoo linked reinsurance contracts affected by the fraudulent letters of credit (LOC) continues.

Yesterday’s hearing was driven by the JPL’s seeking clarity over their attendance of an upcoming Bermuda Supreme Court hearing regarding the liquidation of cells linked to Aon intellectual property reinsurance transactions.

What came out of it was an approval that they and White Rock should be able to attend, but in doing so they must not take any actions that would violate the current interim stay orders and automatic stay.

Judge Mary Walrath stated, “Let me address the narrow issue that is before me. It is whether or not the JPL’s else can attend Friday’s hearing to answer any questions that the Bermuda court, which appointed them, may ask and I think the answer to that is clearly yes.

“I do not see that as violating the automatic stay or the terms of the interim stay orders.

“They are a fiduciary appointed by the Bermuda court under the Bermuda courts purview and if the circumstances were reversed, I would expect the fiduciary that I had appointed in a bankruptcy case to appear at a hearing I scheduled to address my questions about what is going on, in both that case, and any related Chapter 15 case.

“I don’t think another order is necessary, we already have four interim orders regarding the effect of the stay, we have the automatic stay and I understand that the JPL’s and White Rock have stated that they do not intend to violate the automatic stay.

“If they do, the debtor has remedies.”

Clearer still, was the frustration of the judge in having to mediate between the parties over matters they had failed to agree on.

Leading her to say, “I am not deciding any property interests in the Vesttoo segregated cells that are implicated by the debtors bankruptcy, but I do have the jurisdiction to decide that issue at the appropriate time.

“I also have jurisdiction to decide the motion that the debtor has filed regarding whether or not White Rock has or the JPL’s have already violated the stay and that is scheduled and will be heard.

“But I agree with the committee and the debtor, that we ought to stop litigating and start cooperating.”

She went on to discuss the importance of protecting the bankruptcy estate, which perhaps provides a glimpse into how the US court may deal with the subject of segregated cells, their ownership and whether they constitute part of the bankruptcy estate or not.

For the judge, it seems to all be about protecting value and maximising it for the benefit of creditors, which speaks to the very reason for bankruptcy courts in the first place.

Saying, “There is limited property, as in any bankruptcy or wind up proceeding. It is in the interest of both parties, I believe, to maximise the value of that property and it ought to be done before the parties, as in any bankruptcy, often it is appropriate to preserve and or sell property of the estate before anybody fights over their share of that pie.”

In addition, Judge Walrath called for the establishment of a protocol that would allow a level of coordination between the Chapter 11 bankruptcy court in Delaware and the Bermuda Supreme Court where the White Rock cell liquidation and restructuring case is set to be heard.

“There also should be an appropriate protocol that will allow this court to communicate with the Bermuda court and vice versa to try and set up procedures that will assist the parties in working cooperatively to the end that both of them hope and that is maximising the value of the estate,” Walrath said.

Judge Walrath went on to advise the parties that a mediator may be able to assist, in finding common ground between them, particularly related to the topics of the functioning of a protocol between the courts, of how far the automatic stay extends, whether the property of the White Rock cells is the property of the bankruptcy estate, and so whether Vesttoo as debtor should be allowed to control them.

These are topics where there remains a substantial amount of disagreement, particularly on the White Rock cells and their ownership.

Summarising, the judge explained, “I think the JPL’s as fiduciaries in the Bermuda case, are obligated to appear at the hearing to answer the courts questions. They have committed that they will not seek affirmative relief that would violate the automatic stay and I’m satisfied with that representation today.

“I understand the debtor would be permitted to attend the Bermuda hearing and can protect its interests there.”

The call for cooperation is timely, as with the Bermuda hearing nearing there is every possibility that after that the disagreement over the way forward, in relation to the fraud affected cells, their ownership and whether they form part of the bankruptcy estate, may escalate.

Interestingly though, there was no mention in yesterday’s hearing of the creditor committee statement that counsel had discovered that a large amount of cash may have been withdrawn from certain of the Vesttoo Segregated Accounts since mid-July 2023.

That seems an important piece of the puzzle and one we’re likely to learn more about as this saga continues.

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