Creditors object to Vesttoo’s insurance spending plans
Creditors of Israeli insurtech, Vesttoo, which has filed for Chapter 11 bankruptcy, are seeking to stop the firm spending “millions of dollars” on insurance.
Vesttoo downgraded its Bermuda office after slashing 75 per cent of its world wide staff in the wake of an alleged fraudulent letters of credit scandal.
Its collateralised Bermuda insurer was put into receivership, as local creditors, Aon’s White Rock Insurance (SAC) Ltd, sought the return of more than $136 million.
Joint provisional liquidators were appointed by the Bermuda courts, but creditors sought redress in the Delaware court where Vesttoo filed for Chapter 11 bankruptcy protection.
The Official Committee of Unsecured Creditors has objected to a motion filed in the Delaware court for Vesttoo to maintain its insurance coverage and pay related obligations.
Creditors raised concern that the company was “wasting estate resources” which could leave no distributable assets for unsecured creditors and accused them of “rapidly depleting their liquid financial resources”.
The Committee’s objection states: “The insurance motion seeks broad relief that would allow the debtors to unnecessarily spend millions of dollars of very limited estate resources to replace, renew, or extend insurance coverage, including purchasing new types of insurance, with no oversight from this court, the committee, or any other party in interest.
“The debtors have no ongoing business, have generated no revenue since commencing these cases, have no concrete or actionable ‘trade forward’ business plan, have few, if any, exploitable assets, and they do not have the committee’s support in their pursuit of an implausible, future going-concern business.
“Moreover, the debtors have yet to produce a budget or other discipline on their spending, there remains little to no understanding of the difference between the debtors’ restricted and unrestricted cash, and every dollar spent by the debtors in these cases is tantamount to gambling with the recovery owed to unsecured creditors.”
The objection filed by the committee said Vesttoo’s application was premature and that of the eight policies identified by Vesttoo, only three – D&O, professional indemnity, and workers’ compensation – expired within the next two months.
“The facts and circumstances forming a basis for claims under the D&O and professional indemnity policies are known to the debtors, and the damages for such claims far exceed the limits of those policies,” said the objection.
“Thus, so long as the debtors make such claims against the applicable insurers prior to the expiration of those policies, there is no basis for renewing or replacing the policies, which the committee understands would cost more than $1 million.
“Therefore, the debtors should make or otherwise preserve such claims under the existing policies and the relief requested should be rejected.”
The committee said it did not object to Vesttoo maintaining workers’ compensation coverage until the remaining employees “are ultimately terminated in connection with the liquidation and wind down of the debtors”.
“However, to the extent the debtors seek to obtain workers’ compensation coverage that differs from the current policy, including any increased coverage or premium, the debtors should be required to provide the committee with prior notice and an opportunity to object.
“Additionally, any extension or maintenance of workers' compensation coverage should be time limited to reflect the potential winding up of all employment and ongoing business effort at the debtors, subject to local law requirements.”
The committee said the remaining five policies did not expire until June 2024, or later and this part of the motion should be denied.
The committee sought oversight over any other policies to “closely monitor the debtors’ use of its limited and rapidly diminishing cash resources” together with spending caps and a court hearing to justify any additional expenditures to prevent further unnecessary depletion of estate resources.
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