The directors and firms involved with failed insurer Bermuda Fire & Marine Insurance Co. Ltd. knew or suspected that it was insolvent before the company was divided into two in 1991, a court heard yesterday.

And Gabriel Moss, lawyer for the liquidators of Bermuda Fire & Marine, said directors of the company were scrambling to find a solution after a "disastrous'' foray into international business led to mounting losses and projected future claims.

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 as he continued his opening statement on the second day of the case.

He claimed the directors were helped by accountancy firm Cooper & 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 that 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. Cooper & 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.

Mr. Moss said he plans on calling seven witnesses to prove his case during the course of the civil trial, including Bank of N.T. Butterfield legal counsel Peter Rodger who will be testifying under subpoena.

Mr. Rodger 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.

Full story: Business, Page 33