Vesttoo case: Chapter 11 plan confirmed. Focus now turns to Bermuda

The modified and amended Chapter 11 bankruptcy plan of liquidation for insurtech Vesttoo got its court approval late yesterday, as the Delaware judge signed off on a last minute term sheet related to settlements. But, with some objections still being raised the focus now turns to the Bermuda court for approval to proceed with constructive trust claims and recoveries under the plan.

As we reported yesterday, the settlement agreement was nearing completion after a hearing on Feb 27th, with almost all aspects agreed on and just a final tweak or two to the plan confirmation and term sheet needed.

At a hearing held at 2pm US Eastern time yesterday Feb 28th, those term sheet updates and amendments were brought in front of the judge of the Delaware bankruptcy court, who moved to approve the amended plan despite there being objection and a need for the Bermuda court to also confirm it.

The court heard at yesterday’s hearing that the Official Committee of Unsecured Creditors to the Vesttoo bankruptcy, the joint provisional liquidators (JPL’s) to the cells of the Aon White Rock SAC vehicle that were affected by the Vesttoo letter of credit (LOC) in reinsurance fraud, and Chaucer which is not part of the Committee, had all agreed a “fully-consensual plan”.

That’s only after the range of plan modifications, modifications to the proposed confirmation order, as well as proposed settlements, that were all made in negotiations that went late into the night on Feb 27th.

Those amendments detailed in a term sheet have all been approved by the judge and so the plan was confirmed by the judge and court, meaning what is left of Vesttoo can move into the next phase of its winding down and liquidation.

Conditional items included the fact that, right after the plan effective date, parties including the the Liquidating Trustee, the Wind Down Advisory Board, and the JPL’s need to meet to “address how any litigation related to the Vesttoo fraud, discovery, and exchanges of documents shall be handled.”

Regular scheduled meetings are expected to be held between these parties as a way to try and ward off litigation where possible, with the Committee included as well where possible.

By keeping all creditor parties and those effectuating the wind-down of Vesttoo informed and aligned, it’s hoped that litigation won’t be necessary.

But, some degree of litigation seems guaranteed, given the recoveries cedents and creditors are likely to make from the bankruptcy estate will fall far short of the claims they had raised against it, in monetary value terms.

The Committee, reorganised debtors (Vesttoo) and the JPL’s have all agreed to not object to and cooperate where necessary with any efforts the JPL’s make to seek standing in any legal action involving Vesttoo in Israel and to also seek recognition in Israel of the White Rock action in Bermuda, which is important as that Bermuda action remains key.

The reason that action in Bermuda’s Supreme Court is key, is because the terms of the Committee and JPL settlement agreement that has been reached and that allowed the bankruptcy plan to be confirmed, remains subject to the filing of an order, deemed to be “reasonably acceptable” to the Committee, of the Bermuda Court that sanctions the settlement and authorises the JPL’s to implement the settlement agreements.

So the Bermuda court must sanction the Vesttoo bankruptcy settlement term sheet and plan, the reason being that the property ownership of segregated cells and issues of constructive trust are key to the plan being followed through, especially for the settlement agreements that cedents reached with the Committee.

The JPL’s are now tasked with making best efforts to get what is called the Bermuda Order filed, on or before 21 days after the entry of the Confirmation Order (so that clock starts today Feb 29th) or March 22nd 2024, whichever is soonest.

The Delaware court said that if it feels the JPL’s are not making best efforts to achieve this deadline to secure the Bermuda court order, it could call a further hearing.

So, there remains work to do on constructive trust claims and the liquidation of segregated cells and accounts, with resolution of these seen as a priority, but a priority that may rely on Bermuda law and certainly relies on the Bermuda court order and sanctioning of the bankruptcy plan and settlement.

Cooperation is a theme that runs through the settlement agreements and now needs to continue between all parties, as without it the settlement agreement could fall apart.

There are other potentially sticky negotiations to be had, it seems, as the counsel for Aon’s White Rock said during yesterday’s hearing that they believe certain provisions of the term sheet may not be consistent with Bermuda law, as a result this may be raised during any Bermuda court hearing, something the other parties were made aware of.

The topics of the property ownership of segregated cells, as well as constructive trust assets and claims are all going to be issues that require hearing in Bermuda, with an order needed from that court to proceed with the bankruptcy plan, winding up and liquidation it appears.

There is still disagreement from some creditors over the terms of the plan, with one creditor-linked counsel saying that the plan implies paying certain administrative costs out of the estate, seemingly at a higher priority than some constructive trust claims from cedents or creditors may come in at, meaning they believe there is a fundamental issue with the way the Plan deals with constructive trust claims.

Meanwhile, Markel’s counsel, the insurance group being a member of the Committee, responded to say that it has a significant constructive trust claim which it believes will be “full dollar” and that it believes there is plenty of time to discuss these issues after the bankruptcy plan is confirmed.

There remains some concern among parties that the deadline to get this Bermuda court order is too short, given the ongoing disagreement between some cedents and beneficiaries to cells and Vesttoo structures.

But still, the Delaware court judge approved the plan in its current state, putting the onus now on the Bermuda court action to deliver an opinion on a way forwards and whether it deems the plan an appropriate way to liquidate and disburse funds linked to the Vesttoo fraud reinsurance deals.

Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.