Bermuda-registered AlphaStar Insurance Group Ltd. - formerly Stirling Cooke Brown - and 11 of its subsidiaries, have applied for Chapter 11 bankruptcy protection in New York.

According to the the electronic newsletter, KYC News, the group is seeking breathing room while it seeks buyers for its assets, including its New York-based policy-issuing subsidiary Realm National Insurance Company, for which AlphaStar “is no longer able to provide capital”.

However, the article said that in a move “which is likely to enrage its creditors”, AlphaStar's two remaining directors approved massive bonuses for themselves and two other officers on the same day the petitions were filed.

The article, which was sent out by e-mail, said that despite their firm's “chronic financial condition” and “potential liabilities totalling hundreds of millions of dollars” after the loss of a fraud lawsuit in the UK earlier this year, Stephen Crane and Len Quick authorised bonus payments totalling $1.6 million to “encourage” the four to stay on during the bankruptcy proceedings.

Under the bonus arrangement, $600,000 will be paid to Mr. Crane, the firm's chairman, president and chief executive officer, $487,500 to Mr. Quick, chief operating officer, $305,000 to James Lawless IV, general counsel and $225,000 to Anthony Del Tufo, chief financial officer. The article said that 50 percent of the bonuses are payable “upon the closing of a sale of substantially all” of the group's assets and the other half “upon confirmation of a plan” of liquidation, said the article.

Details of the proposed payments are contained in bankruptcy petitions that were filed at the US Bankruptcy Court for the Southern District of New York on December 15 by AlphaStar Insurance Group Ltd. and its following subsidiaries: Alpha Star Insurance Services Inc., of Florida; Stirling Cooke Brown North American Holdings Inc., of Delaware; Stirling Cooke Brown North American Reinsurance Intermediaries Inc., of New York; Stirling Cooke Brown New York Insurance Agency Services Inc., of New York; Stirling Cooke Risk Management Services Inc., of Florida; Stirling Cooke Southeast Inc., of Alabama; Stirling Cooke Texas Inc., of Texas; Employee & Providers Resources Group Inc., of Delaware; North American Risk Inc., of Texas; World Trade Services Inc., of New Jersey; and World Trade Services, of Pennsylvania.

In its petition, AlphaStar Insurance Group Ltd. claims to have total assets of $8 million and total debts of $1.5 million. However, the company has not filed its schedules and statement of financial affairs and has filed a motion seeking to extend the deadline by which it must do so to February 28.

Potential liabilities resulting from an unsuccessful defence by two of its British subsidiaries of a major fraud lawsuit filed by Sphere Drake Insurance at the UK High Court, which could amount to hundreds of millions of dollars, are not mentioned in AlphaStar's bankruptcy filing, said the article. The group's law firm in that case, Richards Butler, is listed by AlphaStar as its biggest unsecured creditor, with a claim for $1.6 million. Other unsecured creditors include AlphaStar's former auditor, KPMG (New York), with a claim for $300,000; Concentra Managed Health Care Service, of Dallas, Texas, $150,000; Fried Frank Harris Shriver & Jacobson, of New York, $130,300; Aon Risk Services, of Denver, $125,000; and the Torrenzano Group, of New York, $42,673.

Stirling Cooke Brown Holdings Ltd., as AlphaStar Insurance Group Ltd. was then known, was taken public by Goldman Sachs in November, 1997 in a $50 million IPO.