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Jurisdictional difference as US court upholds Vesttoo stay

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Judge Mary F. Walrath, of the United States Bankruptcy Court for the District of Delaware (File photograph)

A jurisdictional battle between Bermuda and the United States may be brewing after a ruling from a Delaware court in what could be the biggest insurance bankruptcy in Bermuda.

On Monday, Judge Mary F. Walrath, of the United States Bankruptcy Court in the District of Delaware, ordered the Bermuda joint provisional liquidators to back off, at least temporarily, in their pursuit of White Rock cell assets in the bankruptcy of Vesttoo.

“White Rock and the JPLs shall not take any action that violates the automatic stay applicable to these debtors’ bankruptcy estates without further relief from this court modifying the automatic stay,” the ruling said.

Vesttoo is known as the debtors in the document.

The order continued: “White Rock and the JPLs agree to conduct themselves as if the automatic stay applies to the segregated accounts and the property within the segregated accounts, absent further order of this court.

“White Rock and the JPLs shall not take any action to obtain possession of property of these estates or of property from the debtors’ estates or to exercise control over property of the debtors’ estates.”

Judge Walrath said that if the two sides cannot come to an understanding about the assets in question, a hearing would be held on October 2.

The insurtech is claiming ownership of the White Rock cells and argues that the cells are protected under Delaware Chapter 11 proceedings. The Bermuda liquidators counter that a stay order under the bankruptcy does not apply to their work related to the White Rock cells.

They contend, in a filing dated September 13, that Vesttoo has no control over the assets of the cells, that the authority belongs to White Rock and to the liquidators to the extent that they are working on behalf of the board of White Rock.

Vesttoo, they say, only has a right to the surplus, if any, from the cells.

In the filing, they also questioned the integrity of Vesttoo management and said that any investigation by it is in doubt, as the executives and directors currently running the company were there when the fraud was taking place and did not act to prevent the fraud.

“Despite the pervasive fraud at Vesttoo, no trustee or independent crisis manager has been installed to oversee Vesttoo. Instead, many of Vesttoo’s pre-bankruptcy senior officers and directors remain in place,” the liquidators asserted in the court filing.

Vesttoo declined to reply to the claims levelled by the liquidators or reply to questions about Monday’s ruling.

It instead issued a release through an outside public relations representative in support of the internal investigation.

In the statement, the company said: “Vesttoo and its subsidiaries want to confirm the critical importance of the independent investigation that has been commenced into the misconduct that led to the company’s collapse and the need to commence a voluntary bankruptcy proceeding in the United States.”

The statement went on to argue that the investigation is independent, despite doubts on the part of some creditors.

“A full and transparent investigation was commenced at the direction of a special committee of the Vesttoo board of directors almost immediately after the allegations related to the letters of credit used on Vesttoo’s platform surfaced. The investigation was led by highly skilled and independent lawyers and forensic investigators. The investigation team was given complete access to company documents, systems and employees.”

Vesttoo was founded in 2018 and registered as a collateralised insurer in Bermuda in 2022. It was to be the eBay of reinsurance.

The insurtech platform started falling apart this year when it was found that collateral used in some transactions appeared to have been fraudulent.

In early August, Vesttoo Alpha P&C was placed into liquidation by the Bermuda Monetary Authority, and Charles Thresh and Michael Morrison, of Teneo, were appointed as joint provisional liquidators.

Later in the month, dozens of Vesttoo-related companies filed for bankruptcy protection in Delaware, and on August 20, the BMA said that together with White Rock Insurance (SAC), it would focus on pursuing maximum recovery in the courts in Bermuda.

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Published September 19, 2023 at 8:00 am (Updated September 18, 2023 at 7:57 pm)

Jurisdictional difference as US court upholds Vesttoo stay

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