Insurance Company, a process that is still going on, nine years after it began.

Liquidators say, though that the liquidation, considering its complexities, has moved at a better than expected pace, and will pave the way for improvements to the process for the future.

Government is still considering how to overhaul liquidation procedures for Bermuda companies and top insolvency practitioners involved in the Mentor project believe that over the next year, legislative changes will be enacted.

The high profile insurance company liquidation is history in the making because it is the largest ever in terms of aggregate liability, the largest in terms of assets paid out and a staggering record in terms of its costs.

Costs and expenses of the liquidation have crept close to $75 million and continue to climb.

But joint liquidator, Ernst & Young partner, Mr. Charles Kempe, of Kempe & Whittle, has indicated that liquidations with the legal complexities of Mentor may not be so common in the future.

He said that through the Mentor experience, liquidators learned that there are some aspects of the Companies Act and the rules relating to the winding up of companies that need to be changed.

They have had to return to the Supreme Court some 75 times for directions from the court since 1985. And often, in the absence of any clear precedent for how to proceed, it was the liquidators that would have to suggest a course of action and seek court approval.

Mr. Kempe explained, "The majority of those directions have been sought to obtain clarification in situations where the statute or regulations governing the winding up of companies is unclear or silent completely. They don't deal with today's commercial reality.'' Said Mentor joint liquidator, Mr. Nigel Hamilton, partner in Ernst & Young in London, "There was no provision really for the winding up of these types of entities. Reinsurance companies. There was provision for the winding up of a company, but nobody had ever envisaged in terms of the writing of the law, either here or anywhere else really, about the length of times involved and the fact that you couldn't actually decide what the liabilities would be for such a long time.'' Mr. Kempe said, "The law is written, as it was back in the early 1900s. It contemplates the winding up of a corner grocery store. All you do is find the assets on the shelf. You know what the accounts payable are. You just match them up.

"But that is not the way reinsurance companies work. You can take thirty or forty years to determine liabilities.'' He said, "The recommendations have gone to the Finance Ministry and have come from the professionals involved in Mentor and from BIBA (Bermuda International Business Association) and the Law Reform Committee. They have been assembled over the last two or three years.

"There have been codified a number of revisions to Bermuda's insolvency sections which will get into law probably over the next year which will tidy up a lot of the loose ends that we experienced with Mentor.'' In what The Royal Gazette last year July called the "mother of liquidations'' after a speech by Mr. Kempe to the Bermuda Insurance Institute, the story emerged of the Los Angeles murder of a former Mentor president, before the liquidators could find out what he knew of the company failure in 1985.

It was just one twist in a big stakes shoot out to chase down millions of dollars owed to Mentor, and subsequently to its creditors.

By next January, nine and a half years after the company went bust, Mentor Insurance - in liquidation will have its office staff reduced from a current number of 12 to three.

"Mentor's affairs have been very, very complex,''said Mr. Kempe last week, after a lengthy meeting of Mentor's committee of inspection in the board room of Kempe & Whittle concluded with a disbursement of $150 million to unsecured creditors.

"We've had thirty-odd people working on this for nine years now. And there have been some of our staff working on it, as well. All the people from Mentor knew they were working on something that would come to an end. We had to treat them reasonably generously, or as generously as we could to induce them to stay, because obviously, good people don't work in dead-end situations for very long.

"A lot of them were difficult to replace because they had specific industry knowledge and some of them had specific knowledge about Mentor, too, which we wanted to retain.'' Mentor was set up in Bermuda in 1968 by its parent, Ocean Drilling & Exploration Company (ODECO) of New Orleans. But since the liquidation began, a large fortune has been spent on lawyers and other legal matters in an attempt to collect what the company was owed.

The principle legal action undertaken by the liquidators, was a long running and expensive six year law suit against ODECO, their directors and officers and their auditors.

Reported Mr. Kempe,"We realised an aggregate benefit out of that of $40 million in cash, plus the shedding of probably another $60 million in liabilities. So that was probably worth $100 million to us.

"It cost us $20.5 million in legal costs to pursue that and get the $100 million benefit. We've spent several million dollars more than that in legal costs on things like collecting bad debts, on general insolvency advice, on the construction or putting into place the scheme of arrangement.'' Joint liquidator, Mr. Nigel Hamilton of Ernst & Young in London added, "The scheme itself, which has enabled us to pay the dividends, was an expensive exercise.

Without it though we would not have been able to pay a dividend in a very long time.'' The scheme of arrangement, agreed to by creditors in February 1993, established the end of June of that year as the final date that creditors could make a claim against Mentor. Those claims were then adjudged as to their reasonableness by the liquidators.

Mr. Kempe said, "Mentor being one of the biggest and early reinsurance failures of the eighties, it has proved to the industry that the best way to deal with an insolvent reinsurer is not to put it through a plain statutory liquidation.

"The scheme of arrangement to re-constitute some sort of orderly disposal of its liabilities enables a far more expedient, less costly and less disorderly finishing of the whole thing.'' The problem for the liquidators was that the significant part of the long tail liabilities won't even be known about for another 25 years. But who would be willing to wait for a liquidation two or three decades into the next century that is going to pay them a small fraction of what they are owed? Said Mr. Kempe, "We had to determine a way of getting maximum return in the shortest length of time we can.

"We might wind up with what's called some rough justice because people have to estimate those liabilities well in advance. But it is better to estimate them, even if the estimates are not totally accurate and get the job done now, than to be precise and get less in the long run.'' Mr. Hamilton adds,"A big benefit is that it recycles money back into the marketplace now, rather than fifteen years down the road.'' The claimants numbered 1003, claiming from Mentor $970.3 million. But $131.8 million of those claims were rejected by the liquidators and there was a further reduction of $241.6 million.

By the time deductions were made for security ($98.2 million), discounting ($62.5 million) and set off ($17 million), the liquidators calculated net liabilities of the company to be $419.2 million.

Assets totaling $117.6 million were in the company, and $65 million in reinsurance, together with $125.6 million in investment income was collected.

Some $40 million was recovered through litigation.

More than $230 million has been distributed to creditors, with last week's $150-million pay out, the second pay out of the nine year liquidation. Some $41.7 million has been retained to cover possible distributions in respect of appeals against adjudications, as well as to pursue remaining reinsurance recoverables which could exceed another $25 million.

The captive's troubles resulted from its decision to write third party business for tax reasons. But even as the parent company, ODECO was busy trying to secretly move the insurance company files to New Orleans, the authorities had to mount an operation to seize records from the airport and from off the docks here and in Florida.

LIQUIDATOR -- Mr. Charles Kempe