As we suspected might happen, Vesttoo is indeed claiming ownership of the White Rock Insurance (SAC) Ltd. segregated cells or accounts that are subject to the legal action that broker Aon’s White Rock Insurance SAC vehicle alongside regulator the Bermuda Monetary Authority (BMA) began last week.
As we reported last Friday, Aon, through the White Rock Insurance (SAC) Ltd. segregated account company and transformer vehicle, joined forces with the Bermuda Monetary Authority (BMA) to pursue “maximum recovery” for the re/insureds affected by the alleged fraud involving Vesttoo related segregated accounts used for reinsurance transactions the insurtech had facilitated.
The Bermuda Monetary Authority (BMA) and White Rock Insurance (SAC) Ltd. agreed to pursue a course of action in the Supreme Court of Bermuda, targeting the liquidation of Vesttoo related cells and the recovery of any assets linked to the affected reinsurance deals.
As we then reported yesterday, Vesttoo claimed in the bankruptcy court that the action being taken in Bermuda by White Rock and the BMA was in violation of the automatic stay, that began with its Chapter 11 filing.
As we also said in that article, the wording used in court filings we’d seen, seemed to suggest that Vesttoo was planning to claim ownership of the White Rock segregated cells in question.
The wording of that declaratory filing we reported on yesterday, suggested that Vesttoo sees itself as owner of any segregated cells in question, including those that are within the White Rock Insurance SAC structure, while also claiming that it was the investors’ responsibility to fund them, to provide the collateral security necessary for backing the reinsurance arrangements.
Now, fresh court filings in the Chapter 11 bankruptcy case have come to light and Vesttoo is indeed making a direct case that it has an ownership claim over the White Rock Insurance (SAC) Ltd. segregated cells or accounts, as a result of which it says they should be considered part of its bankruptcy estate and so fall under the stay and protection.
Vesttoo’s claim is that, under the transformer agreements and Bermudian law, the specific segregated accounts were set up to exclusively benefit Vesttoo Bay, a structure Vesttoo uses within the reinsurance transactions and that acquired the shares from the issuing cells, and that Vesttoo Bay beneficially owns any assets held on account of and linked to the cells.
As a result of which, Vesttoo claims that, as the debtors in the case they own the White Rock Segregated Accounts and they fall under its bankruptcy estate.
The court filing explains that in, “the Segregated Accounts Act, “account owner” is defined to mean the registered holder of the shares issued by the segregated accounts company and linked to a segregated account or expressly identified in the governing instrument linked to the segregated account as being the account owner.”
As we suspected, this is another attempt to claim that the White Rock and BMA action in Bermuda is defying the automatic stay of the bankruptcy court.
Which suggests these actions will now also put the court’s interpretation of the Bermuda Segregated Accounts Companies Act to the test, to a degree.
Vesttoo has also claimed that the move by Aon’s White Rock and the BMA to place only the Vesttoo related reinsurance transaction cells of the White Rock SAC structure into liquidation was not an appropriate action.
The filings in Vesttoo’s bankruptcy case state that appointing joint provisional liquidators over individual segregated accounts is not permitted.
The filing states, “This announcement was all the more remarkable because Bermudian law does not permit appointment of JPLs for segregated accounts unless White Rock, the segregated account company, applies for winding up of its entire business. There is no indication White Rock has made such an application.”
The joint announcement by White Rock and the BMA had stated, “This action applies only to the impacted Vesttoo Cells. White Rock Bermuda continues to operate in the ordinary course of business, and this action has no effect on any other cells or White Rock Bermuda clients.”
White Rock is certainly not being wound up, rather the Aon and BMA action seeks to protect the cells exposed to potential letter of credit (LOC) fraud for the benefit of the re/insured clients, while White Rock continues to operate and service its numerous other clients that use the company structure.
So again, this appears another claim that could test the interpretation of the Bermuda Segregated Accounts Companies (SAC) Act in the courts.
That could lead to discussion of whether cells are a legal entity in their own right, the rights of an account owner versus the owner of the structure itself, as well as whether it is liquidation or receivership that can apply to individual cells, sources tell us.
It is difficult to believe that Bermuda’s regulator, the Bermuda Monetary Authority (BMA), alongside Aon, would launch Supreme Court action that was not warranted, or valid, under the SAC Act.
As Vesttoo attempts to ward off legal action, so that it falls under its Chapter 11 bankruptcy proceedings, it is at the same time prolonging a process of inevitable disclosure and discovery that will have to happen at some stage, in order for the facts and truth of what has actually occurred and who was responsible for any fraud to come out.