The wind-up of insolvent Bermuda-based Carolina Reinsurance Limited took another step forward this month with the Supreme Court of Bermuda sanctioning a Scheme of Arrangement between the company and the scheme creditors.

Except for a few shares owned by resident directors, court documents say the stock of Carolina Re was owned by Maurice Sabbah, his wire and Kenneth Kornfeld.

The two men were also the principals of its Burlington, North Carolina-based parent company Fortress Re.

Last January, a New York arbitration panel ordered the collapsed aviation-reinsurance firm Fortress Re to pay $1.12 billion in damages after finding that the firm defrauded a big Japanese insurer, Sompo Japan Insurance Inc.

It has been reported that Fortress Re had ceded hundreds of millions of dollars to Carolina Re which went into liquidation in December 2001.

Fortress collapsed after suffering a heavy losses from the September 11, 2001 terror attacks and other airline disasters, including a passenger jet crash in Queens in November 2001. Fortress had acted as a manager selling reinsurance on behalf of three major Japanese insurance firms: Aioi Insurance Co., Taisei Fire & Marine Insurance Co., and Nissan Fire & Marine Insurance, which then merged into Sompo.

When the Japanese insurers on whose behalf Fortress Re had written insurance policies sought to recover claims stemming from the series of aviation disasters they found that both Fortress and Carolina were insolvent.

In a suit filled in a US District Court in North Carolina, Sompo estimated the total losses for all its pool members at $3.5 billion, including more than $1.4 billion in losses related to September 11.

Sompo had a 26 percent share of the Fortress pool.

It said an audit of Fortress?s books following September 11 revealed what it claimed were huge hidden losses going back years.

Last year a federal judge allowed Sompo?s suit to go forward against Fortress?s principals while referring its complaint against Fortress itself to go to arbitration.

Last December, a panel of three reinsurance industry experts ruled that the principals had committed ?actual fraud? and ?knowingly misrepresented material facts? in presenting financial information to Sompo.

It also found that Fortress Re had fraudulently caused pool members to transfer hundreds of millions of dollars to Fortress and its shareholders, in part through ?illegitimate? commissions.

The panel awarded Sompo $1.009 billion in actual damages along with $100 million in punitive damages and attorney?s fees, plus the return of $10.6 million that Fortress was holding in escrow accounts.

Aioi said in 2002 that it expected to lose 148 billion yen ($1.23 billion) from reinsurance deals with Fortress Re while Taisei Fire & Marine Insurance,filed for bankruptcy in 2001 due to heavy exposure to Fortress Re.

Related litigation is pending by pool members against Deloitte & Touche, former auditors of the pool accounts as well as that involving Carolina Re.

Carolina Re which should have paid out an estimated $600 million had just $62 million in assets.

Carolina Re?s joint liquidators, Ernst and Young?s John McKenna and Gareth Hughes have been searching for assets to pay off its massive liabilities.

According to a legal notice gazetted this week, the Scheme of Arrangement between Carolina Reinsurance and the Scheme Creditors became effective as a matter of Bermuda law on December 3.

The final deadline for filing is February 7.

Non-Pool Scheme Creditors are required to complete and return a Notice of Claim form to the joint liquidators before the deadline.

Any non pool scheme creditor who does not complete and return a notice of claim form will have no right to file a notice of claim or receive any payment under the Scheme and any liabilities of the Company to that non pool scheme creditor shall be deemed to have been satisfied in full under the scheme.