FedNat creditors Monarch, HP Managing seek examiner appointment

By Sarah Lizee

Olympia, Wash., June 22 – FedNat Holding Co. creditors Monarch National Insurance Co. and HP Managing Agency, LLC are seeking appointment of an examiner to the case, according to a motion filed with the U.S. Bankruptcy Court for the Southern District of Florida.

The creditors said that in April, the debtors moved more than $5 million of cash from potentially solvent FedNat Underwriters, Inc. to other debtors and have provided virtually no documents to support the rationale for doing so.

Monarch and HP Management said that, at an April 6 hearing prior to the transfer, the court acknowledged that perhaps one liquidation outcome for at least some of the debtors may be something other than the “joint plan” that the debtors and official committee of unsecured creditors intend to file.

The creditors said FedNat Underwriters and debtor Century Risk Insurance Services, Inc. may be solvent. The bulk of Monarch and HP Management’s claims are against those entities.

Monarch and HP Managing said the court has emphasized the need for estate professionals – who have billed fees of nearly $3.8 million since the petition date without any allocation of amounts to correspond to services provided to any specific debtor – to maintain allocations because it is unknown how any one of the debtors’ cases will conclude, or if any particular debtor will have sufficient cash to pay fees properly allocable to that given debtor.

“The court aptly noted that there may be unknown agendas involved in these cases,” the creditors said in the motion.

Monarch and HP Managing said the court’s intuition was correct, and that “unknown agendas are potentially driving behavior that is contrary to the fiduciary obligations of, and the fiduciary duties owed to, each individual liquidating debtor.”

The creditors said the sequence of events since the hearing and the debtors’ silence demonstrates the immediate need for an examiner to investigate the debtors’ recent conduct and transactions, and report to the court before any joint plan process, and attendant increased fee burn, begins.

“Movants recognize the gravity of this motion and do not bring it lightly, but cannot stand by while the debtors’ professionals appear to play a shell game with each individual debtor’s cash, manipulate accounting for the benefit of certain debtors and for undisclosed motives, and generally act in the manner that has unfolded since April,” the creditors said.

The insurance holding company, which is based in Sunrise, Fla., filed bankruptcy on Dec. 12. The Chapter 11 case number is 22-19451.

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