Coopers & Lybrand will be forced to defend itself later this year against accusations that it took part in an elaborate fraud, involving a US insurance company which collapsed with $3bn (#1.8bn) of outstanding claims, following a move to Bermuda.
The Privy Council, which is the highest court for UK-dependent territories, has left the way clear for an appeal against the move to Bermuda and the subsequent liquidation carried out by Coopers.
The council’s decision is a setback for the firm, which has been fighting the claims for over a year.
Coopers was confident that a series of legal moves had prevented critics from taking the case any further. The firm strenuously denied it was involved in fraud.
Coopers acted as liquidator to Emlico, the captive insurance arm of US conglomerate General Electric, from 1995 when it moved from Massachusetts to Bermuda.
It collapsed three months later when it ‘discovered’ its liabilities had soared to $3bn.
Re-insurers of Emlico alleged that GE, Emlico and Coopers, which also advised on the insurers’ restructuring, duped the local insurance authority into allowing the move.
The re-insurers – including Lloyd’s of London – argued the firm knew the insurer was insolvent and wanted to benefit from Bermuda’s lax insolvency laws.
The re-insurers added that if US officials had known the true picture they would have never allowed the transfer to take place.
The re-insurers are also pursuing actions in the US.
A ruling is due in the next couple of months which would clearly set out whether the Massachusetts insurance authority could outlaw the scheme and take over the liquidation from Coopers.
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