Vesttoo says value can be recovered as it & creditors object to US Trustee move

Vesttoo is now insisting that there is value recoverable in some reinsurance transactions that were “bona fide”, while at the same time both Vesttoo as the debtor and the creditor committee in the Chapter 11 bankruptcy case, have objected to the US Trustees move to convert that case to a Chapter 7 focused on a rapid liquidation.

In fact, it now transpires that Vesttoo and the Official Committee of Unsecured Creditors appointed in the chapter 11 case, have found some common ground.

The debtor and creditor group reached on agreement earlier this week on November 6th, as to a plan to move forwards.

It seems that plan will still see Vesttoo attempt to sell some of its insurtech assets, while working to recover any value possible and then enabling the creditors to act on a plan to wind down.

Having previously slated the insurtech’s plans to trade forward, the creditors have now found an agreeable way to proceed.

Remember that Vesttoo had strongly objected to the creditors claims, accusing them of undermining efforts to sell some of the insurtech’s assets in what Vesttoo called a display of brinkmanship by the creditor committtee.

Recall that, the US Trustee had called for the Chapter 11 bankruptcy case to be converted to Chapter 7, which would have enabled an independent trustee to be appointed by the court with the sole goal of liquidating Vesttoo’s assets to maximise value to pay back its creditors.

Both Vesttoo and the creditors have objected to this plan, stating that keeping the insurtech in Chapter 11 is a better solution to maximise value from the bankruptcy estate.

Vesttoo has now said that the US Trustee has not shown cause for the conversion to Chapter 7, explaining that the insurtech is “working to resolve these cases in an efficient way and maximize value notwithstanding the events that lead to these cases.”

Vesttoo claims significant value is already available, with some $57 million of cash still held at the time of the latest filings.

In addition, Vesttoo highlights that they have seized additional funds from the fraudsters named as those behind the letter of credit (LOC) fraud.

On top of this, Vesttoo says that there are also “bona fide investment deals” outstanding that it can “terminate early and recover returns on certain investments and/or excess cash collateral funded to protect the reinsurance transaction participants.”

That is estimated to amount to as much as another $15 million of potentially recoverable cash, Vesttoo said.

The insurtech is also working to try and resolve other reinsurance transactions, where fraudulent LOCs had been involved.

If it can achieve this, any reduction in transactions outstanding can reduce costs and remove Vesttoo’s exposure to potential claimed losses, the company said.

As a result, Vesttoo states in its latest filing, “Clearly, the Debtors have sufficient cash to continue to operate in chapter 11, to pursue a sale transaction, pursue unwinding transactions and collection of excess collateral and pursue further collection efforts.”

Interestingly, Vesttoo’s counsel even said that the insurtech has “engaged in discussions with counsel to the JPLs about possible ways to work toward unwinding transactions in the so-called Vesttoo Affected Cells.”

On top of this, Vesttoo has been working with the committee of creditors and have now shifted away from any restructuring thoughts, to focus solely on a sale process, while at the same time the Committee develops a plan.

They explained, “The Debtors are committed to completing a sale as soon as possible with hopes of a closing around December 1, which, if it occurs will generate cash and save the estates various wind down costs. And if such a sale is not possible or cannot come together in that time frame, the Debtors will have worked with the Committee toward a singular liquidating plan that can be presented as promptly as the Court’s schedule and the Bankruptcy Rules permit.”

With an agreement reached between Vesttoo and the creditor committee, it could set a path forwards for less litigation and more cooperation.

Having reached this agreement, the Creditors said in a filing, “The Committee expects to file a proposed plan and disclosure statement in the next few days that would have the Debtors’ choses in action placed in a litigation trust for further investigation and pursuit post-confirmation and preserve the Debtors’ attempt to sell their business assets in a transaction that would close by December 1. Due to the unique complexities of the Bermuda segregated cell structure that facilitated the reinsurance transactions at issue in these proceedings, the proposed plan of liquidation will preserve aspects of the Debtors’ corporate structure to protect cedants from any unintended tax or other consequences caused by plan confirmation and preserve cedants’ individual claims. The Committee unanimously supports implementation of a liquidating plan under chapter 11 instead of the UST’s proposed conversion as the best option to maximize and preserve value and advance claims for the benefit of the Debtors’ creditors.”

Adding, “After careful consideration, the Committee is persuaded that conversion is neither required nor in the best interest of creditors because, among other things, it would result in duplicative spending and set back the substantial progress that has been made to date by months.”

The creditor committee’s plan for liquidation would involve, “placing litigation claims in a trust to continue the Committee’s claims investigation and pursuit of claims, with minimal or no disruption by establishing an oversight board comprised of the Committee members and keeping the Committee’s current professionals,” among other things.

Questions remain, such as who might buy Vesttoo’s technology assets and whether any such sale is really serving to generate value for creditors and those hurt by the reinsurance letter of credit fraud, or if it’s really serving the investors that might back an acquisition of some of the parts of the insurtech.

But the progress made will be welcomed by parties hoping to recover value, as there seems a cleaner path forwards now, with a sale process that the creditors and the bankruptcy court will likely at least have visibility of, if not get to approve.

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