The Appeals Court yesterday refused to grant an injunction which would have stayed legal action being taken against shareholders of the insurance group BF&M by the liquidators of the defunct Bermuda Fire & Marine Insurance Company.

The injunction was sought by BF&M after Puisne Judge Mr. Justice Meerabux recently ruled that the liquidators could press a lawsuit against BF&M shareholders to "recover'' their shares, which they claim were wrongfully transferred from the now-defunct company.

Lawyers for the eight BF&M companies were attempting to have the ruling stayed until their application for leave to appeal was heard in March.

The dispute stems from a controversial 1991 reorganisation of Bermuda Fire, when the company's profitable domestic insurance business was spun off into a new company, BF&M, while the old company retained the loss-making international insurance operations. Bermuda Fire shareholders were then granted shares in the new company.

Lawyers for liquidators Ernst & Young are now likely to inform about 1,000 BF&M shareholders of the liquidators' intention to reclaim the value of the shares on the grounds that it was a "wrongful transfer''. The liquidators want the shareholders to reimburse Bermuda Fire.

News of the hearings before Mr. Justice Meerabux, which were held in closed court, were reported in US trade magazine Business Insurance on October 17.

Following publication of the story, BF&M's shares were suspended from trading on the Bermuda Stock Exchange.

Lawyers for both sides denied their clients were responsible for the leaks to the magazine, which cited a source close to the liquidation.

Mr. Gabriel Moss QC represented the liquidators and creditors assisted by Mr.

Ian Kawaley and Mr. Delroy Duncan.

Mr. David Oliver QC acted for the corporate defendants -- the eight BF&M companies as well as one individual defendant, assisted by Mr. Tim Marshall.

President of the Court of Appeal Sir James Astwood, Mr. Justice DaCosta and Mr. Justice Cons were to give reasons today at 11.30 a.m. for their decision not to grant the injunction.

Mr. Moss said yesterday that the reorganisation stripped out substantial assets for the benefit of directors and shareholders.

The assets "were stripped for the benefit of shareholders,'' he said. Mr.

Oliver said: "The first defendant (BF&M Ltd.) has an ongoing domestic insurance business with thousands of people who have a trading relationship in which they need to have some confidence.

"The impact (of the legal action) is relatively limited so far.'' He said the company was concerned that "no further steps be taken to damage the business of the plaintiff'', which had so far been limited to the suspension of trading.

The application for the injunction was made pending determination of the applicant's notice of motion for leave to appeal Mr. Justice Meerabux's ruling to the Court of Appeal, which is to be heard on March 4.

BUSINESS BUS