The lawyer for Bermuda Fire & Marine Insurance Co. Ltd. liquidators yesterday alleged in Supreme Court that the directors and firms involved with the company knew or suspected it was insolvent when they stripped assets to create BF&M Ltd in 1991.

Gabriel Moss, lawyer for the liquidators Ernst & Young, step by step laid out a picture before Puisne Judge Vincent Meerabux of an insurance company that had made an "disastrous'' foray into international business and subsequently was being hit with mounting losses and projected future claims.

He claimed that the directors involved -- who at one time or the other sat on the company's finance committee -- became increasingly concerned and scrambled around to find a solution.

That solution involved "illegally'' extracting themselves and the shareholders from the loss-making international business and shifting the profitable domestic business into newly-created shell company BF&M, Mr. Moss alleged.

He claimed the directors were helped by accountancy firm Coopers & Lines and law firm Conyers Dill & Pearman. He alleged that the accountancy was "incompetent'' in giving the opinion that Bermuda Fire had enough surplus left to pay creditors after the profitable business was extracted. He also claimed that Conyers Dill & Pearman failed to advise the directors they were committing a "fraudulent conveyance of property with intention to defraud the creditors''.

Bermuda Fire's liquidators and creditors are suing the company's five former directors, Conyers Dill & Pearman, and Coopers & Lines for unspecified damages and want to seize the common shares in BF&M. Coopers & Lines is the predecessor partnership to PricewaterhouseCoopers Bermuda.

The former directors are William Cox, Donald Lines, Greg Haycock, Michael Collier and Charles Collis, who died last year.

Up to 1,000 shareholders in BF&M could lose their investment if the liquidators win their case in Supreme Court.

Key to the liquidators' case is how much the former directors and firms were involved with Bermuda Fire and whether they knew the company was insolvent.

At the time BF&M was created, accountancy Cooper & Lines gave an opinion that Bermuda Fire had a $12 million surplus after accounting for future claims, he said. Bermuda Fire went into liquidation two years later, short of $450 million.

Mr. Moss alleges that through the close nature of the directors' personal relationships with the law firm and the accountancy they were able to complete what he termed an "illegal'' transaction in setting up BF&M.

Conyers Dill & Pearman lawyer John Collis was the firm's legal advisor at the time. Mr. Collis is the son of Charles Collis who was a senior partner at the law firm. Mr. Lines, whose brother David is a partner at Coopers & Lines, was then chief executive of the Bank of Bermuda Ltd. Mr. Collier was then the former chief general manager of the Bank of N.T. Butterfield & Son at the time.

The two banks were involved in helping finance the creation of BF&M.

Mr. Moss said he plans on calling seven witnesses to prove his case during the course of the civil trial. They include liquidator John McKenna of Ernst & Young, Diego Wauters of investment firm J.P. Morgan, Bank of N.T. Butterfield legal counsel Peter Rodger, and former Royal Gazette reporter David Marchant.

Mr. McKenna is part of the three member liquidation team for Ernst & Young.

Mr. Wauters was part of the J.P. Morgan team the directors had asked to evaluate the Bermuda Fire business just before BF&M was created.

Mr. Rodger, who is testifying under subpoena, is expected to be asked about a letter he wrote in 1991 advising that before making a loan to BF&M the Bank of Butterfield needed a "clear and unequivocal opinion from BF&M's attorneys that the transfer of assets pursuant to the reorganisation are not fraudulent conveyances'' under Bermuda law.

Ex-directors `knew of insolvency' Mr. Marchant is expected to testify about an interview he had with Charles Collis for a story published in The Royal Gazette on November 8, 1993. In the interview Mr. Collis claimed the split-up of the company freed-up liquid assets thereby protecting Bermuda Fire creditors.

Under the 1991 deal newly created BF&M paid Bermuda Fire $56 million for its domestic business with $10 million in cash, a loan note of $3.5 million, one million nine percent convertible cumulative redeemable preference shares in BF&M and 2.88 million common shares in BF&M.

The common shares were immediately dividended out to Bermuda Fire shareholders. The $10 million, raised from the two banks, was used to pay off Bermuda Fire preference shareholders. The liquidators claim that Bermuda Fire was in no financial position to make the share dividend and the directors and firms involved knew or suspected that to be the case.

In the interview Mr. Collis claimed that the company received "independent'' advice from Cooper & Lines and from actuarial firm Tillinghast.

Mr. Moss alleges that Mr. Collis made a "misstatement'' in the article and that Bermuda Fire directors, prior to the 1991 creation of BF&M, had instructed Tillinghast not to make an estimate on pollution claims arising out of the international business.

Bermuda Fire's 1991 directors, Coopers & Lines, and Conyers Dill & Pearman have denied the liquidators' claims. The former directors have said they acted in the best interests of the shareholders and policyholders, who include the creditors.

BF&M and the shareholders group plan on calling 11 witnesses in the company's defence, including Glen Titterton, Cyril Rance, and Irmgard Viera. Mr.

Titterton was president and chief executive of Bermuda Fire from 1991 until becoming president and chief executive Mr. Rance was president and chief executive of Bermuda Fire from 1985 to 1990. Ms Viera was vice-president of operations at Bermuda Fire from 1990 and currently works at BF&M. Lawyers representing the four former directors and Mr. Collis' estate plan on calling Mr. Cox, Donald Lines, Mr. Haycock and Mr. Collier. Conyer Dill & Pearman plan on calling two witnesses, including John Collis. Cooper & Lines lawyers are calling David Lines, the brother of Donald Lines, and Tom Miller to the stand.

Mr. Miller is an accountant at PricewaterhouseCoopers who wrote a document advising Bermuda Fire directors outlining the steps to be taken to split Bermuda Fire profitable domestic business off into BF&M.

Mr. Moss refers to his memorandum as the "Going all the way'' document. In the memorandum Mr. Miller stated that assuming the worst possible losses from the international business Bermuda Fire "will not be able to withstand the ever increasing losses. Unless all of the subsidiaries are stripped out they will have to liquidate with (Bermuda Fire)''.

Mr. Moss then claims Mr. Miller was advising the directors to "go all the way'' and create BF&M, leaving the loss making business with Bermuda Fire. Mr.

Miller was responsible for an audit of Bermuda Fire from June 1991. Another nine expert witnesses are due to be called during the case which continues today.

BUSINESS HEAVY WEIGHTS TO TESTIFY Business heavyweights to testify Gabriel Moss, lawyer for the liquidators Ernst & Young, plans to call seven witnesses to prove his case in Bermuda Fire & Marine Insurance Co. Ltd. civil trial. Among them are liquidator John McKenna of Ernst & Young, Diego Wauters of investment firm J.P. Morgan, and Bank of N.T. Butterfield legal counsel Peter Rodger.

Former Royal Gazette business reporter David Marchant is also expected to testify.

The 11 witnesses BF&M and the shareholders group propose calling include Glen Titterton, Cyril Rance, and Irmgard Viera. Mr. Titterton was president and chief executive of Bermuda Fire from 1991 until becoming president and chief executive Mr. Rance was president and chief executive of Bermuda Fire from 1985 to 1990. Ms Viera was vice-president of operations at Bermuda Fire from 1990 and currently works at BF&M.

Lawyers for the four ex-directors and Mr. Collis' estate intend calling Mr.

Cox, Donald Lines, Mr. Haycock and Mr. Collier. Conyer Dill & Pearman propose calling two witnesses, including John Collis. Cooper & Lines lawyers are calling David Lines, the brother of Donald Lines, and Tom Miller.

Peter rodger Irmgard Viera Glenn Titterton