The Supreme Court of Bermuda is expected to be asked to appoint a permanent liquidator for Bermuda-registered Carolina Re, which went into liquidation in December last year.

Caroline Re was officially wound up in Bermuda on March 22, but on Friday notices of creditors and contributors' meeting were placed for June 12 at 10.30 and 9.30 respectively.

On the agenda for the meeting to decide whether or not to appoint a liquidator and a committee of inspection.

Accountants John McKenna and Gareth Hughes, of Ernst & Young, were appointed provisional liquidators of Carolina Re on December 3, 2001 at Bermuda Supreme Court.

They subsequently obtained a preliminary injunction at the U.S Bankruptcy Court for the Southern District of New York, requiring that all of Carolina Re's assets, records and property be given to them. The injunction order specifically identified Fortress Re Inc., PricewaterhouseCoopers, Nissan Fire & Marine Insurance Company and Deloitte & Touche as possible holders of property.

In a court filing, Mr. McKenna said that Fortress Re and its principals "have refused to voluntarily co-operate with creditors of Carolina Re in their efforts to ascertain the location and amount of Carolina Re assets available to pay its reinsurance obligations".

But despite this court action, little is known in Bermuda about the company. According to maverick newsletter Inside Bermuda, Carolina Re was allegedly used to siphon approximately $470 million of premiums from a North Carolina-based aviation reinsurance pool known as Fortress Re.

The newsletter also said that the principals who controlled both companies have been accused of providing the pool's members with false financial statements showing "exceptional" profits instead of "exceptional" losses.

Inside Bermuda said the allegations were made in a civil lawsuit filed by The Nissan Fire & Marine Insurance Co. Ltd., of Japan, at the US District Court for the Middle District of North Carolina on January 25, 2002.

The defendants are Fortress Re Inc., of North Carolina; Maurice D. Sabbah and his wife, Zmira Sabbah, both of North Carolina; their daughter, Leeor B. Sabbah, of Pennsylvania; and Kenneth H. Kornfeld, of North Carolina.

Fortress Re's manager in Bermuda, Westbroke Ltd., which is affiliated with the law firm of Conyers Dill & Pearman, is not named in the complaint.

Maurice Sabbah and Kornfeld controlled both Fortress Re, which had an MGA contract with Nissan, and Carolina Re, which reinsured between six and 25 per cent of the pool's risk, according to the complaint.

Since July, 1993, the Fortress Re pool has written business on behalf of only three members: Nissan, The Taisei Fire & Marine Insurance Co. Ltd. and The Aioi Insurance Co. Ltd., the latter of which was formed recently after a merger of The Dai-Tokyo Fire & Marine Insurance Co. Ltd. and The Chiyoda Fire & Marine Insurance Co. Ltd. Before the merger, Chiyoda, but not Dai-Tokyo, was a member of the Fortress Re.

Nissan claims that Carolina Re was used as a vehicle for insiders to divert Fortress Re premiums for their own benefit with no benefit to pool members.

Carolina Re's only client was Fortress Re, it purchased no reinsurance and effectively paid out at least $408 million as dividends to shareholders, it was claimed in Inside Bermuda.

Carolina Re went into provisional liquidation in Bermuda on December 3, 2001 following a petition by the island's Supervisor of Insurance.

According to Nissan's lawsuit, Carolina Re's financial exposure to Fortress Re amounts to more than $600 million, while its balance sheet at December 31, 2000 showed capital and surplus of just $62 million.

The full extent of Carolina Re's insolvency is unclear because its principals have repeatedly refused to release documents to Nissan or its representatives, according to the complaint.

The firm added that: "In the wake of the September 11, 2001 events, Fortress Re finally consented to allow Nissan to conduct an inspection that included the retrocession arrangements it had effected for the Reinsurance Pool using the accounting firm of PricewaterhouseCoopers. Even that inspection, however, was severely limited by unsupportable rules Fortress Re imposed that denied access to many Reinsurance Pool records.

"Despite Fortress Re's refusal to provide Nissan acceptable access to all records in Fortress Re's possession related to Nissan's share of the Reinsurance Pool business, Nissan decided in September 2001 to make do with an inspection of those limited records that Fortress Re would allow Nissan to inspect."

Fortress Re announced that it was going into run-off in December, 2001. Its clients include Lloyd's syndicates, Hannover Re, the St. Paul Companies, GE Frankona Re and Global Aerospace Underwriting Management, who bought coverage of up to $500 million each.