A scheme of arrangement has been selected in the liquidation of Bermuda Fire & Marine Insurance Co. Ltd. (BFMIC) and came into effect two weeks ago.

Liquidators have considered that a payment percentage could be set within the first year of the scheme in Bermuda's most notorious insurance failure.

The scheme was approved by BFMIC liquidators and the scheme creditors last November, and last month the Bermuda Supreme Court and the High Court of Justice of England and Wales permitted their sanction of the scheme.

The United States Bankruptcy Court for the Southern District of New York granted a permanent injunction order, providing for the enforcement of the scheme of arrangement in the US.

The orders from courts in the three jurisdictions sanctioning the scheme were presented to the Registrar of Companies here and in the UK for registration on January 15, the effective date of the scheme.

A scheme payment system will be developed over the next few months and put into place. Creditors and liquidators have opted for a "run-off'' rather than a "cut-off'' scheme of arrangement for the liquidation of Bermuda Fire & Marine Insurance Co. Ltd.

Unlike a cut-off scheme where creditors establish a final figure at the outset that they believe to be owed, a run-off scheme provides for repeated updates on the amount being claimed.

The gross provision for claims is estimated to be in the region of $400 million to $700 million. The overall shortfall is estimated to be ranging from $250 million to $450 million.

It is further estimated that payment percentages throughout the life of the run-off are almost entirely dependent on the successful and efficient collection of reinsurance recoveries which could exceed $200 million.

Liquidators believe that the nature of the business accepted by BFMIC through H.S. Weavers (Underwriting) Agencies Ltd. (in liquidation) and C.R. Driver & Co. Ltd. (in liquidation) and through Bermuda London Underwriting Agency Ltd.

is unlikely to be run off in less than 20 years.