The recent unsealing of a lawsuit filed on behalf of a group of North Carolina life insurers in receivership has spurred new allegations from an entity objecting to the rehabilitation plan of Pavonia Life Insurance Co. of Michigan, which would end with the insurer's sale to an Ares Management Corp. subsidiary.

The complaint, originally filed in Wake County, N.C., Superior Court in October 2019 and unsealed in January 2020, alleges that Greg Lindberg, the embattled owner of Pavonia and the North Carolina companies, violated the terms of a memorandum of understanding intended to facilitate an increase in the long-term equity value of several affiliates under his control that constitute significant portions of the insurers' investment portfolios.

The ability of those affiliated entities to repay amounts outstanding under debt facilities and equity financing arrangements extended by the North Carolina insurers, according to allegations made by the plaintiffs in the unsealed suit, is key to their ability stave off liquidation. Global Bankers Insurance Group LLC served as the managing company for Pavonia and the North Carolina companies, which include Colorado Bankers Life Insurance Co., Southland National Insurance Corp. and Bankers Life Insurance Co.

Lindberg, who has been indicted on federal criminal charges of public corruption and bribery, categorically denied the allegations in a news release, including the accusation that he failed to reorganize the affiliated entities under a centralized holding company. But a group that includes Independent Life Insurance Co., a provider of structured settlement annuities that has been contesting for several months Pavonia's proposed $75 million sale to Ares' Aspida Financial, said in documents submitted Jan. 27 to the Ingham County, Mich., Circuit Court that certain claims in the North Carolina complaint validate its concerns about the transaction. It cited the suit as the basis for additional research that uncovered what the group alleged to represent a "pre-existing financial relationship between Ares" and American Academy Holdings LLC, one of the supposed Lindberg affiliates, in a "clearly material" amount of $275 million.

The Independent group urged the Michigan court, which is considering a motion to approve the Pavonia rehabilitation plan, to examine the "full ramifications" of a stock purchase agreement with "one of Lindberg's primary private lenders." The group, which previously issued a non-binding proposal to acquire Pavonia for a cash purchase price of $80 million, plus an additional $20 million capital infusion and contingent upon the ability to conduct due diligence, also renewed its request for a court order opening the insurer's books and records to it and other potential acquirers.

Ares and the Michigan Department of Insurance and Financial Services, Pavonia's rehabilitator, argued on multiple occasions that the Independent group lacked standing to object to the plan of rehabilitation. The Michigan court held a hearing Jan. 16 on the Pavonia receiver's motion to approve the rehabilitation plan; it later said that responses to the Independent filing "would aid in its deliberations." Circuit Court Judge Wanda Stokes plans to issue an order on or before Feb. 25, but has not specified what the order would address. The Form A for the change in control of Pavonia is also pending before the Michigan regulator.

The Independent group argued that it was "questionable" that Ares allegedly did not disclose the amounts of loans to entities affiliated with Pavonia in the rehabilitation plan or its response to the group's objection.

Aspida earlier disclosed that Ares Management had made loans to affiliates of Lindberg's Eli Global LLC at arm's length in the ordinary course of business and argued that they were not material to Ares Management's overall operations or assets under management. The buyer further said that it only provided that information because it was allegedly "disparaged" by the Independent group as part of a "disinformation campaign."

The American Academy exposure cited by the Independent group was sourced to an Ares Capital Corp. investor presentation where the company listed it among its top 10 investments by issuer as of March 31, 2019. Ares Capital is a closed-end business development company that is externally managed by an Ares Management subsidiary.

In a response filed Feb. 4 with the Michigan court, Aspida alleged that the Independent group had "maliciously miscast" public disclosures of loans to Lindberg entities. Funds managed by Ares for third-party investors had made loans to Lindberg-owned businesses at arm's length, Aspida confirmed, but the company said those actions did not confer a special relationship or incentivize Ares to offer "a sweetheart deal" for Pavonia. It also noted that the American Academy loan had been "repaid in full out of proceeds from a competing lender."

More broadly, Aspida blasted the objector as engaging in "reckless, bad faith tactics" by making claims on "sheer conjecture and innuendo" and urged the Michigan court to issue sanctions.

In a statement subsequently provided by the Independent group, Chairman Michael Upchurch said that the company has "attempted to provide regulators and the Court with the ability to draw salient conclusions from the disparate facts and circumstances surrounding the proposed rehabilitation plan for Pavonia." Upchurch added that the company has "full faith and confidence" that the Michigan regulator and the Ingham County court will use the information provided in the company's filings "to make decisions in the best interest of protecting Pavonia policyholders."

Among the other concerns raised by the Independent group in its original objection was that Pavonia allegedly would be overseen by its existing management team and that the Global Bankers legal entity had been transferred to Pavonia prior to the rehabilitation plan's filing allegedly for "zero consideration and opaque business purposes." Statutory filings showed Global Bankers to be a subsidiary of GBIG Holdings Inc., Pavonia's direct parent company, as of March 31, 2019, then as a direct Pavonia subsidiary as of June 30, 2019, following an internal reorganization.

Aspida in the Feb. 4 filing defended Pavonia's management team and countered that it negotiated for the acquisition of Global Bankers, an administrative services company, because it contains the resources needed to operate Pavonia as an active writer of insurance business. It also alleged that the Independent group's "interference" had resulted in "unnecessary delay" and caused "extraordinary additional expense that none of the parties contemplated." Ares initially said it planned to close the acquisition by the end of 2019.

The proposed transaction as currently structured, Aspida argued, "protects policyholders. assures the financial security of Pavonia ... and removes them from under the control of Greg Lindberg."

Ares Management declined to comment for this article, and the state of Michigan did not address requests for comment.