US Trustee requests Chapter 7 liquidation for Vesttoo
The US Trustee has requested that the Delaware Bankruptcy Court appoint an independent fiduciary to handle the Vesttoo case in the pursuit of an “efficient and value-maximizing” liquidation of the debtor’s assets.
In a motion filed on Friday, the trustee requested to convert Vesttoo’s Chapter 11 cases to Chapter 7, so “an independent fiduciary can wind down the debtor’s affairs and avoid significant administrative costs”.
The US Trustee Program is a component of the Department of Justice responsible for overseeing the administration of bankruptcy cases and private trustees.
Under Chapter 7, an independent and uninterested fiduciary would be appointed to pursue causes of action against responsible parties, investigate whether others were involved or bear liability for failing to take appropriate action, and marshal the assets of these debtors in “an unbiased way to promote the greatest recovery to stakeholders”, the filing read.
The move follows the filing of a motion by Vesttoo’s committee of unsecured creditors last week, which asked for early termination of the exclusivity period granted to the ILS InsurTech to propose a new reorganization plan.
The purpose of the request was to facilitate taking the Chapter 11 case forward and to permit creditors to file a liquidation plan in a manner that would maximize the value of the debtor’s estates.
The US Trustee agreed with the creditors that debtors are eating into their cash position in the “absence of a reasonable likelihood of rehabilitation”.
However, the US Trustee said the committee is engaging in “overly optimistic thinking” regarding the result of its motion, which would not prohibit debtors from pursuing a new business plan but invites further litigation that will continue to “deplete and drain resources away from the payment of unsecured claims”.
In addition, it noted that Vesttoo interim CEO Ami Barlev had served as a board member for the firm before his appointment, and therefore could not act as a “true neutral”, creating a continuity of management of those that perpetrated the massive fraud.
Vesttoo immediately fired back at the creditors’ motion on October 23, saying the move “disrupts” its ability to restructure.
In the press release, interim CEO Barlev said: “The committee has not even attempted to understand the company’s business plan, nor are they willing to provide the company with the limited time needed to deliver a value-maximizing transaction.”
The trustee wrote in its motion that the conversion to Chapter 7, on the other hand, would “avoid further litigation among the parties in these Chapter 11 cases and preserve the greatest amount of estate resources for distribution on allowed claims”.
In September, court findings showed that the vast majority of letters of credit (LOCs) issued by Vesttoo were fraudulent, the result of an elaborate deception that included impersonation of bank officials, according to findings made public as part of the bankruptcy case.
According to the latest court documents filed by the unsecured creditors’ committee, approximately $4bn of purported LOCs were fabricated, and defrauded insurance company counterparties hold claims that likely exceed $1bn.