Mutual Liability Company Ltd. (EMLICO), the Bermuda-based insurer accused of practising fraud and deception in moving here from Massachusetts in June, 1995.

Although the decision goes against the wishes of Kemper Re, one of the EMLICO reinsurers making the allegations, a Supreme Court judge agreed that Kemper had demonstrated a serious issue to be tried.

Puisne Judge Richard Ground, after sitting through some ten days of hearings on whether the winding up order should be delayed pending a hearing of the allegations, ruled that he was still faced with a Bermuda company that was insolvent.

"As things presently stand,'' he said in his judgment, "only this court can wind it up, although that may change in the future. In my judgment the petition itself is not, properly considered, an abuse of process.

"If Kemper have been wronged, their remedy, if they have one, lies elsewhere.

Even if I were wrong on that, there is no point in holding the trial of an issue in the winding up, and I consider it quite inappropriate.'' Mr. Justice Ground said delaying the winding up order while the issue was tried in another court would leave EMLICO in "an unsatisfactory legal limbo for an uncertain period, which is likely to prejudice the company and thus ultimately its creditor''.

He saw no prejudice to the real interests of the reinsurers by granting the order, although he was aware they would gain tactical advantage by his delaying of the order.

But he revealed that Kemper asked in a letter to the court as late as Thursday, that if he was to make the winding-up order, could he defer so counsel could argue how it should proceed, and in particular, if it should be conditioned pending appeal or the resolution of judicial review proceedings.

Justice Ground's response was clear: "That is not something consequent upon my judgment, and the suggestion is, with respect, wholly misconceived.

"I have heard Kemper on the question of a condition limiting the powers of the Joint Provisional Liquidators pending the judicial review, and for reasons given above have rejected the proposal.'' The Puisne Judge was referring to the fact that Kemper had been unsuccessful in an attempt to have restrictions imposed upon the liquidators, stopping them from settling or admitting any General Electric (GE) claims, except by a court decision that would allow Kemper lawyers to submit a position.

But Mr. Justice Ground said: "They cannot now re-open that, and if they had wanted such an opportunity they should have applied for it in unambiguous terms, which they did not.

"This has been the hearing of the winding-up petition, and the making of the winding up order is not a consequential matter, but is the very thing upon which I am asked to give judgment.

"If, on the other hand, Kemper wish to seek some conditioning of the order pending appeal, that is something which they should apply for on notice in the appeal, once initiated, and is not something that I can entertain now.'' The winding-up will now proceed under a court condition that the liquidators should not, prior to the conclusion of judicial review proceedings, admit any proof of debt lodged in GE's contingent claim, without obtaining further direction from the court.

"As that is proposed by the petitioner (EMLICO), and GE has not objected, I think that I can properly make it a term of the winding-up order itself, and I will do so,'' Mr. Justice Ground said.

The attempt by Kemper, as an EMLICO reinsurer and therefore a debtor, to intervene in a winding up order was unusual, in that only creditors are usually heard. Two other reinsurers which tried to join Kemper in making these allegations before the court, were refused entry, because they were late in applying.

Mr. Justice Ground suggested that it may have been noteworthy that neither the Finance Minister, nor the Registrar of Companies opposed the winding up order.

A sworn affidavit in support of the petition from Registrar, Mr. Kymn Astwood, indicated satisfaction with the way the company was redomesticated to Bermuda, even though US regulators asked him in May to seek an adjournment of the winding-up hearing.

The petition to wind up EMLICO was presented last October, after company accounts to September showed liabilities exceeding assets by $407 million, a $512 million deficiency against the required solvency margin here.

Kemper wanted the hearing stopped because, they claimed, it was an abuse of process, and that EMLICO's presence in Bermuda was procured through a fraud against the regulators of both Bermuda and the state of Massachusetts.

The allegation is that the company knew it was insolvent and moved to "creditor friendly'' Bermuda, after having claimed to regulators from both jurisdictions that they were solvent.

GE is the principal policyholder and creditor for EMLICO. The allegations include charges of culpability by GE. Both companies deny the charges.

Kemper has begun judicial review proceedings here aimed at quashing the admittance of EMLICO into Bermuda. And there is an attempt to obtain judicial review in Massachusetts of the decision that allowed the redomestication.

Kemper also would have access to arbitration under the reinsurance treaties.

Mr. Justice Ground said: "The trial of the issue of fraud in these (the winding up) proceedings would serve no real function.'' He said even if he did hear the charges and found in Kemper's favour, he could provide no meaningful relief to them.

"I cannot, in the winding-up, quash the redomestication in some way and enforce the removal of the company back to Massachusetts. I cannot give damages. I cannot give relief from the reinsurers' obligations.

"In reality, I could not even dismiss the petition, the company being wholly insolvent and there being no other practical means of dealing with it. Indeed, a finding of fraud would be another reason to wind it up.'' Mr. Justice Ground noted that if judicial review were to go ahead, it may not actually come to trial for at least another year, while the winding up of the company will take several, if not many years, and is unlikely to be concluded before judicial review is concluded.

Puisne Judge Richard Ground BUSINESS BUC