If investors fail to approve a financing deal Scottish Re Group Ltd. has arranged, the company says it might have to seek protection under bankruptcy and insolvency laws if alternate financing was not available.

Executives of Scottish Re, Hamilton, Bermuda, have presented this warning and others in documents filed with the U.S. Securities and Exchange Commission. It also warned that regulatory action could be a consequence of the deal failing.

The documents include a preliminary proxy statement concerning the financing deal and a notice that the company plans to hold a shareholders’ meeting to give shareholders a chance to vote on the deal.

Scottish Re says it hopes to give the meeting date in a final proxy statement that will be mailed to shareholders by Jan. 19.

Scottish Re is a struggling life reinsurer that at one point was the second most active player in the U.S. life reinsurance market.

The financing deal, announced Nov. 27, 2006, involves plans for an affiliate of Massachusetts Mutual Life Insurance Company, Springfield, Mass., and a group of affiliates of Cerberus Capital Management L.P., New York, to each invest $300 million in Scottish Re.

The MassMutual affiliate and the Cerberus affiliate group would each get 1 million convertible shares. The convertible shares could be converted into 150 ordinary shares, or enough shares to give the investors ownership of about 69% of Scottish Re’s shareholder voting power, Scottish Re says in the preliminary proxy.

Once the deal was consummated, all company directors other than Paul Goldean, Scottish Re president, and Jeffrey Hughes, who represents a major shareholder, would resign.

The MassMutual affiliate and the Cerberus affiliate group have filed applications or notices concerning the proposed deal with state regulators in Delaware and South Carolina, the states of domicile for Scottish Re’s U.S. insurance company subsidiaries.

The would-be investors also have filed applications or notices with regulators in Bermuda, the Cayman Islands, Guernsey, Ireland, Singapore and the United Kingdom.

Shareholders might not like the fact that the deal would dilute their equity, but Scottish Re warns that it is in a bad position to negotiate a better deal because of rating agency downgrades and the possibility that regulators might take action.

In addition, provisions of an agreement between Scottish Re and the would-be investors might require Scottish Re to pay the MassMutual affiliate and the Cerberus affiliate group a total of about $37 million in fees and reimbursement charges if Scottish Re ends up accepting what it believes to be a better takeover proposal, Scottish Re says.

Moreover, Scottish Re is vulnerable to collateral calls from its bank, and it is likely that shareholders would receive little or no value in run-off scenario, the company says.

Officers and executives of Scottish Re have an incentive to support the MassMutual/Cerberus affiliate proposal, because the would-be investors have agreed to try to keep officers’ and directors’ liability insurance in place for current Scottish Re officers and directors, as long as the price of the coverage does not double from the amount paid during the 12-month period ending Oct. 31, 2006, Scottish says.

In September 2006, Ohio insurance department officials told Scottish Re that it had “found Scottish Re (U.S.) Inc. to be in violation of an Ohio insurance regulation prohibiting an insurance company from having statutory losses in a 12-month period in excess of 50% of its capital and surplus,” Scottish Re says in the preliminary proxy.

–Allison Bell contributed to this story.