locally-based Mutual Re, which is part of the KWELM group of failed insurance companies.

The court's approval now clears the way for the scheme of arrangement to be put into place for the entire KWELM group.

KWELM is made up of Kingscroft, Walbrook, El Paso, Lime Street and Mutual Re and has liabilities estimated at between $5 billion and $9 billion.

They are subsidiaries of London United Investments (in administration), the failed UK-based property and investment group.

The KWELM companies were the principal members of the H.S. Weavers stamp, membership of which recently led to the liquidation of Bermuda Fire & Marine Insurance.

They underwrote liability insurance and reinsurance, including general liability for manufacturers, professional indemnity and medical malpractice risks.

As a result of high concentration of liability business, mainly from North America, they were particularly exposed to asbestos-related and environmental pollution claims.

The London offices of Coopers & Lybrand, which is liquidating KWELM, estimates the run off of liabilities arising under expired "occurrence'' and "claims made'' policies written between 1972 and 1990 could take between 20 and 40 years.

The run-off period of the group's book of business is expected to last 20 to 40 years due to the long-tail nature of the business written.

Provisional liquidators Mr. Chris Hughes and Mr. Ian Bond said a scheme of arrangement was in the best interests of creditors.

"The only alternative to one or more schemes of arrangement would be the immediate liquidation of each company,'' they said.

"We are of the opinion that a single scheme of arrangement provides the most attractive option for creditors.'' The scheme of arrangement means that the KWELM companies will make interim payments in respect of established claims,'' said Mr. Bond and Mr. Hughes.

"But cash assets would be retained with a view to enabling the companies to make the same percentage interim payments in respect of claims established in the future.

"The scheme will provide for the orderly run-off of the existing business until all present and possible future claims have been dealt with.'' According to the liquidators, the principal advantages of a scheme of arrangement compared with an outright liquidation are: Creditors will receive payments sooner. A percentage of claims will be paid as they are established, with the initial payment expected to be set no later than June 30, 1994. In a liquidation, a dividend would probably not be paid until most claims had been identified and valued, which would take many years.

The administrative costs of the scheme should be similar to those of a liquidation. However, the scheme will avoid the added cost of fees charged by the UK Department of Trade and Industry in the case of a liquidation for the compulsory chanelling of funds of the companies in liquidation through the Insolvency Services Account. That additional expense in the case of a liquidation lasting 20-40 years could be between 150 million and 200 million ($225-300 million).

Under the scheme, the detailed winding-up rules applicable to UK companies would not apply. The scheme would avoid the statutory requirement under the liquidation to convert all claims to sterling at the rate of exchange ruling at the date of the court order for the liquidation. That requirement would have possible exchange rate disadvantages for creditors. Under the scheme, payments can be made in the currencies of the policies.

Material savings in future legal fees may be achieved as a result of provisions in the scheme staying proceedings against the scheme companies pending judgments against or settlements with co-insurers.

Mr. Bond and Mr. Hughes said: "In summary, under the scheme, non-protected creditors should receive earlier payments of greater value than they would if each company were to go into liquidation.'' Certain creditors of the KWELM companies are entitled to protection under the UK's Policyholders' Protection Act 1975.

The policyholders' protection board has agreed, at the request of the joint provisional liquidators, to join in the scheme. Creditors who qualify will be paid a percentage of their claim when it is established, in the same way as other creditors.

However, the board will also pay them an additional amount sufficient to ensure they receive in total the same percentage of their claim (90 percent) that it would have been required to pay if winding-up orders had been made.