Bermuda liquidators of EMLICO (Electric Mutual Liability Insurance Co.) have told a federal judge in Massachusetts that they worked for EMLICO and its founder, General Electric Company, prior to being selected liquidators of EMLICO.

EMLICO reinsurer Kemper Re had argued the liquidators had failed to advise, and in fact had misled, the Bermuda Supreme Court of the prior connection, even at times when "they were required to make a full and frank disclosure of all relevant matters''; and even after Supreme Court Judge Justice Ground, had already ruled that Kemper's allegations of fraud against GE and EMLICO, in relation to specific transactions on which the liquidators had previously advised, presented a serious issue to be tried.

But the highly experienced and widely known C&L insolvency practitioners were not paid for the rendered services until after their October 1995 appointment as provisional liquidators.

Coopers & Lybrand (C&L) Bermuda did open a "zero based time account for practice development'' in relation to EMLICO, on which 20 hours of practice development time were recorded.

The first C&L bill invoiced to EMLICO in December 1995, included a charge for that work of $7,687.50 or $375 per hour, including an additional $187.50 for a half hour of work during the week preceding their appointment.

A joint declaration has been prepared at the request of US District Court Judge the Hon. Douglas Woodlock, who last week asked the liquidators to provide a declaration or affidavit that "neither they nor any of their affiliates received any compensation for services rendered either to EMLICO, GE or any affiliates of those companies'' for work "in the period preceding their appointment as provisional joint liquidators of EMLICO in Bermuda.'' EMLICO's joint liquidators, David E.W. Lines and Peter C.B. Mitchell of Coopers & Lybrand Bermuda, together with their UK partner Christopher Hughes, have declared that none of them, nor their firms, had been retained by EMLICO prior to being appointed provisional liquidators on October 20.

David Lines and Peter Mitchell did have "some limited contact with EMLICO and GE prior to their retention by EMLICO to discuss various topics including: the management of an insurance company which might redomesticate to Bermuda; how a run-off would operate if EMLICO did redomesticate and went into solvent run-off; how the insolvency regime operated under Bermuda law; and, the services that Coopers & Lybrand Bermuda could provide if EMLICO redomesticated to Bermuda.'' Mr. Lines and Mr. Mitchell said they regarded these initial contacts as nothing more than an opportunity to market the services of C&L Bermuda.

The declaration states: "By marketing these services it was hoped that if EMLICO did decide to proceed with its application to redomesticate and if that application were successful, C&L Bermuda would be considered for any work which might evolve from this.'' They said they acted just as their accountancy competitors would have in a market where it was normal for prospective Bermuda companies to seek information from experienced professionals. And it is normal, they said, for the professionals to treat these approaches as marketing opportunities.

They also had no input into EMLICO applications made to regulatory authorities.

Coopers & Lybrand LLP in Boston were retained as advisors in EMLICO's restructuring and redomestication application to the Massachusetts division of insurance and were paid $446,000.

But the Bermuda liquidators made it clear that, while the Boston and Bermuda offices of C&L have an association through C&L International, the two are separate and distinct operations and the Bermuda office had no involvement with the Boston assignment.

Judge Woodlock requested the information after EMLICO reinsurer, Kemper Re, pointed out that GE and the liquidators had an EMLICO connection before they became EMLICO's liquidators.

British QC Lord Neill, in an affidavit filed this month on behalf of Kemper Re, said C&L records show that as early as December 1994, the joint liquidators and their firm were involved in advising on the scheme to redomesticate EMLICO from Massachusetts to Bermuda.

Examples he gave included the C&L Bermuda receipt of a December 28, 1994 letter from EMLICO lawyers about the "Feasibility of redomestication option.

The same lawyers, Shearman & Sterling, faxed them documents dealing with the "proposed action plan for EMLICO restructuring.'' Lord Neill said it appeared they also consulted on numerous matters between January and September 1995.

COURTS CTS