Creditors of the failed Bermuda Fire & Marine Insurance Co. Ltd. (in liquidation) should get an initial disbursement from liquidators in 1997.

A joint liquidator is set to report to the courts a resolution proposing a scheme of arrangement that would govern the liquidation in the new year.

Creditors of Fire & Marine on November 20 overwhelmingly agreed to a scheme of arrangement to expedite the liquidation.

At the first of two meetings, creditors who are also protected policyholders in the UK, voted unanimously in favour of the scheme. During a second meeting, creditors voted 83-2 in favour of the scheme.

A report will be taken to courts here in Bermuda and in the UK this month by Fire & Marine joint liquidator, Ernst & Young partner John McKenna, who chaired the meetings.

Joint liquidators estimated a net deficiency for the company of more than $300-million. If the scheme is proceeded with, Mr. McKenna expects the joint liquidators to establish an initial payment percentage within the next year.

Court sanction of the scheme would make it effective in January.

A scheme of arrangement, increasingly used in insurance liquidations, establishes a cut off date by which creditors have to submit to liquidators a final and complete claim.

Liquidators then review the claims and reduce the various amounts to what they see as a more reasonably proved claim. Creditors are eventually paid through the disbursements of the remaining company assets on a uniform percentage of what is owed.

Schemes of arrangement have been widely adopted because they more quickly and absolutely resolve liquidations, and pay out to creditors on a more timely basis.

Some 18 months ago, liquidators estimated to creditors that the Bermuda insurer's gross liabilities could exceed $500 million, with a potential deficiency of $300 million.

They said then that there were potential reinsurance recoveries of $200 million. Liquidators had agreed that a scheme of arrangement was in the best interests of Fire & Marine creditors.

Mr. McKenna joined the liquidation team at that time. It was then comprised of two other Ernst & Young partners, Anthony Joaquin in Bermuda and Gareth Hughes in the UK.

The liquidators have also been involved in action involving the "1991 transaction'', relating to the controversial split up of the company that critics say stripped Fire & Marine of the significant assets of the company that could be a party to liquidation proceedings.

The directors successfully recommended a plan to shareholders in 1991, to move all the assets and liabilities relating to domestic operations to various subsidiaries, with the shares of the subsidiaries distributed to Fire & Marine's shareholders.

The company then continued the run-off of its international business until October 1993 when draft unaudited statements for the year to December 1992 showed the company did not meet insurance company solvency margin requirements.

COURTS CTS