Vesttoo creditors’ bankruptcy plan goes to vote, recoveries could be sub-$100m

The plan of reorganisation under Chapter 11 for the bankruptcy of beleaguered insurtech Vesttoo has been conditionally approved by the Delaware court judge and can now go to a vote, but documents show that the eventual recovery for unsecured creditors may be minimal.

When we say minimal, it is still millions of dollars that look set to be recovered.

But, that falls far short of the billions of dollars in value destroyed by the fraud involving forged reinsurance letters of credit (LOC) supplied by insurtech Vesttoo.

Nearly $3.36 billion of value in standby letters of credit (LOC) for reinsurance deals are said to have been fraudulently created by former senior employees of Vesttoo.

As we reported last week, in aggregate, creditors to the bankruptcy of Vesttoo had filed over $4.8 billion in claims against the company and its entities.

Allowable claims are closer to $2.8 billion, but the gap between any summing up of creditor claims versus the actual value that can be recovered from Vesttoo’s liquidation and bankruptcy will be significant.

At a Delaware bankruptcy court hearing held yesterday, the judge gave her conditional approval to allow the creditors to take their Chapter 11 plan of reorganisation forward and seek approval through a vote.

There is no guarantee this succeeds, of course, but we are told that the main creditors behind the plan are fully-aligned and backing it.

Notable is the fact that while creditor claims extended to $4.8 billion in aggregate, around $2.8 billion being deemed allowable by the court, the actual forecast recoveries are expected to be below $100 million, perhaps far below.

The one wildcard that could lift the recoveries is litigation, but even then the amount creditors receive won’t get close to the billions of dollars in value destroyed and lost due to Vesttoo’s fraud.

At one stage, as we reported, the sum total of assets, so the value that could be distributed in Vesttoo’s liquidation under the bankruptcy proceedings, had been estimated to be below $25 million.

Now, we understand estimates are sub-$100 million, with a range from approximately $77 million to as much as just over $88 million available to pay the general unsecured creditors to the Vesttoo bankruptcy.

Even with successful litigation, against who is not disclosed, additional recoveries for the unsecured creditors are thought likely to only range between $6 million and $48 million, we’ve learned. There are no guarantees that litigation result in further recoveries at this time.

There’s a lot to finalise with the bankruptcy and liquidation of Vesttoo and amounts are estimated and certain to change, but again it is worth making clear that the value destroyed will not be recovered and major organisations are significantly out of pocket after the reinsurance letter of credit (LOC) fraud, meaning litigation is likely to run.

On that note, the committee of creditors were approved yesterday to pursue legal discovery against the main bank at the centre of the allegations of forged LOCs, China Construction Bank.

As we reported before, the creditors had asked the court to allow them to conduct legal discovery on China Construction Bank.

With around $2.81 billion of the forged letters of credit (LOCs) said to have come from China Construction Bank and allegations that a staff member at the bank had been involved in the fraud conspiracy, it’s one of the avenues for creditors to pursue.

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