Vesttoo case update: Order again enforces automatic stay, with no discovery

As the Chapter 11 bankruptcy case involving insurtech Vesttoo rolls on, the court has filed a now fourth interim order to enforce the automatic stay against Aon’s White Rock Insurance (SAC) Ltd. and the Joint Provisional Liquidators for the White Rock cells, while it’s also agreed that no legal discovery will be undertaken in the case, except in limited circumstances.

The legal case is becoming increasingly unusual, as there are creditors vying for different outcomes and seemingly in disagreement over how the White Rock cells should be treated.

On an almost weekly basis now, there are filings calling for the automatic stay to be disregarded and for legal discovery to be allowed, from both creditor sides (so the Aon White Rock and JPL side, as well as the Official Committee of Unsecured Creditors), but each time it seems the court reinforces the stay with another interim order, at least on the Aon White Rock and JPL side.

This time around, much of the order is the same as the third, stating: that White Rock and the JPL’s will not take any action that violates the automatic stay notwithstanding anything that occurs in the Bermuda court case; that White Rock and the JPL’s agree to conduct themselves as if the automatic stay applies to the Segregated Accounts and the property within them; that White Rock and the JPLs shall not take any action to obtain possession of any property subject to the bankruptcy estate or the cells; that White Rock and the JPLs shall take no further action in the Chapter 15 Case, including legal discovery, as the parties have agreed no legal discovery should take place except in relation to the contempt motion that was filed, and in relation to new testimony.

Now, the parties involved, so Vesttoo as the debtors, plus Aon’s White Rock and the Bermuda JPL’s, are set to “confer in good faith regarding a consensual resolution of the Motion to Enforce, the Contempt Motion, and the Provisional Relief Motion.”

Failing that being resolved, it will be on to a hearing to try and find a common ground.

The order does not mention the request by the Official Committee of Unsecured Creditors to enact legal discovery on Vesttoo.

Recall that the creditor group had said that discovery should be undertaken by them, as it could be conflicted if undertaken within the Chapter 15 filed by White Rock and the JPL’s.

Given the seriousness of the revelations that have come out of the case so far, not least from the report related to Vesttoo’s investigation of the fraud, alleging the involvement of two co-founders, as well as investment sourcing executives, alongside staff from an international bank, it’s perhaps surprising that the court itself is not calling for full legal discovery to occur immediately.

While bankruptcy proceedings are designed to protect the creditors of a company, given all sides have called for discovery to occur, the fact it hasn’t yet means a chance evidence is not being disclosed as fast as it should be, while the longer that takes the greater the chances that certain evidence never comes to light.

It seems creditors need to find a common ground on enacting legal discovery for the benefit of all parties, leaving the recovery of assets to be decided until after that is completed.

The split in creditor aims, which we discussed here, could now begin to delay progress for all interests.

Else we could be here in another four weeks time, with another number of interim orders regarding disputes over the automatic stay and discovery behind us, with little in the way of actual progress being made to benefit the creditors and their clients.

Right now, it feels as if nobody is making progress towards the discovery and disclosure that the industry actually needs to see from Vesttoo, while exposed cedents remain out of pocket and lacking reinsurance in some cases still and the tracing of any lost funds still feels a long way off.

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