The insolvent Bermuda insurance company, First Virginia Reinsurance, has been ordered to wind up in the Bermuda Courts.

The company, which has shortfalls of between $79 million and $111 million, was set up in the 1980s as a reinsurance vehicle for health care corporations in the US state of Virginia.

But now the Supreme Court has ordered it be wound up, and a date put off for three months for a meeting of creditors and contributors, according to a legal notice posted last week.

The company?s collapse is part of an insurance scandal which has rocked the US state and has left thousands of policy holders ? doctors, lawyers, hospitals and medical associations ? without cover and shortfalls estimated at more than $200 million.

And a law suit was filed last week in Virginia by the Virginia Insurance Commissioner, Alfred Gross, seeking to get back the money owed from 21 separate individuals and companies who are involved with the companies behind First Virginia.

Mr. Gross alleges a long history of concealed payments, fraudulent transactions, secret agreements designed to out-fox regulators, conspiracy and breach of fiduciary duties.

The mid-80s liability capacity crisis in the US led to the formation of First Virginia Re ? a Bermuda-based treaty reinsurer set up in 1984.

Managed by Atlantic Security, First Virginia was owned by 32 tax-exempt, mostly health-care corporations generating more than $30 million of gross premiums a year in the late 1990s.

First Virginia Re reinsured physicians professional liability policies issued by a doctor-owned risk retention group in Tennessee and a hospital-owned admitted carrier licensed in 14 states.

The failed company hit the headlines in the US earlier this year after its financial collapse forced State regulators to take over a Virginia medical malpractice insurer, Reciprocal of America.

This company, domiciled in Virginia, insures hospitals for malpractice, workers? compensation and premises liability and used First Virginia Re as its reinsurer.

Virginia?s State Corporation Commission blamed both the US insurer?s financial difficulties on its claims-related losses and the inability of First Virginia to honour its obligations to Reciprocal of America.

Mr. Gross said in the lawsuit, which is looking for payment of money owed to each of the insurers involved in the alleged scam, that the layers of insurance companies were set up to line the pockets of those who set the business up.

?In reality, the principal purpose of the enterprise was to provide for its masters and those closely associated with them a variety of monetary and other benefits, all while cloaked with an aura of respectability and success,? said Mr. Gross in the legal document.

?As is true of so many such stories, its early stages were punctuated with financial successes. But the success of the enterprise and its ability to survive proved illusory as it lacked organisational and financial integrity.

?Those directing the enterprise applied their energy and imagination to conceal their machinations, artifices, obfuscatory strategies and outright fraudulent misrepresentations in order to prop up the enterprise and continue to reap benefits.?

The Virginia Bureau of Insurance discovered that Reciprocal of America only had 10 percent of the capital it should have, and on January a judge in Richmond Circuit Court ruled that its financial condition was so poor that it posed a hazard to policyholders, creditors and the public and the state took over the company.

In June, after a hard look at the numbers by Mr. Gross and a team of experts, they found that the company had been insolvent for months and owed million more than it had in hand. The State Corporation Commission ruled that Reciprocal America was insolvent and ordered it and its affiliates be liquidated.

As a result, in October this year, First Virginia applied for its own winding up on the grounds of insolvency, and this was granted on October 13. It went before the Supreme Court again and an order was issued with an order to wind up last week.

Just how much money can be recovered from First Virginia and passed on to its creditors and contributors will now not be known for a few months as a date for a meeting has been put off by the Bermuda courts.