Title II
Orderly Liquidation
Authority (“OLA”)
OVERVIEW
One of the primary purposes of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act”) is to provide an insolvency
regime for the orderly liquidation of financial companies whose financial
condition and size present systemic financial risk (i.e., “are too big to fail”).
Under that regime, the FDIC may be appointed receiver of a “covered
financial company.”
The Dodd-Frank Act applies to numerous types of “financial companies” that
are not federally insured depositary institutions and, therefore, are not
subject to the insolvency regime under the Federal Deposit Insurance Act
(the “FDIA”) and that would otherwise be subject to various different
insolvency regimes including the United States Bankruptcy Code (the
“Bankruptcy Code”), the Securities Investor Protection Act (“SIPA”) (in the
case of registered brokers or dealers) or state insurance rehabilitation and
liquidation proceedings (in the case of certain insurance companies).
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The Dodd-Frank Act provides that it and not the Bankruptcy Code shall
exclusively apply to and govern all matters relating to “covered financial
companies” for which the FDIC is appointed as receiver and in such case no
provisions of the Bankruptcy Code or the rules issued thereunder shall apply,
except as expressly provided otherwise. However, in the case of a covered
broker or dealer or a covered insurance company, the Dodd-Frank Act does not
completely supplant the existing regime or the authority of the governmental
entity charged with oversight of such entities.
In the case of a covered broker or dealer, the SEC and SIPC will play a role.
Upon appointment of the FDIC as receiver, SIPC will be appointed as trustee,
and subject to certain exceptions, the provisions of SIPA will apply to the
determination of claims and the liquidation of those assets retained in the
receivership of the broker or dealer and not transferred by the FDIC to a bridge
financial company. The orderly liquidation authority will govern the liquidation of
the bridge financial company.
In the case of a covered insurance company, the liquidation of the insurance
company that is a covered financial company will be carried out by the
appropriate regulator under applicable state law, rather than the FDIC, unless
such state regulator does not file the appropriate judicial action under state law
within 60 days after designation of the insurance company or its parent as a
covered financial company. In such case, the FDIC will have the authority to
stand in the place of the state regulator and file the appropriate judicial action to
place the insurance company in liquidation under applicable state law.
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The Dodd-Frank Act incorporates many of the powers of the FDIC found in
Sections 11 and 13 of the FDIA but also adopts certain provisions of the
Bankruptcy Code in order to harmonize the rules applying to creditors’ rights
under the Bankruptcy Code.
This overview will cover the entities that may become a covered financial
company under the Dodd-Frank Act, the procedures for the appointment of
the FDIC as receiver of a financial company, some of the interplay of
various governmental entities in the OLA process and some of the key
provisions concerning the powers of the FDIA and the rights of creditors of
the covered financial company and any covered subsidiaries.
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Companies That May Be Subject
to the Dodd-Frank Act
A.
Covered Financial Company means a “financial company” for which a
determination has been made by the Treasury Secretary to appoint the
FDIC as receiver.
1.
Financial Company is defined as any company that is incorporated or
organized under any provision of Federal law or the laws of any State
that is a
a.
b.
c.
d.
bank holding company;
nonbank financial company supervised by the Federal Reserve Board
(“FRB”) (including an insurance company or a securities broker-dealer
that has been determined by the Council to be systemically important and,
therefore, subject to supervision by the FRB;)
company predominantly engaged in activities that the FRB has
determined are financial in nature or incidental thereto for the purpose of
section 4(k) of the Bank Holding Company Act, or
subsidiary of any of the foregoing that is predominantly engaged in
activities that are financial in nature or incidental thereto (other than an
insured depository institution or an insurance company).
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i.
No company shall be deemed predominantly engaged in activities of
a financial nature or incidental thereto for the purposes of section
4(k) of the Bank Holding Company Act if such activities constitute
less than 85% of the total consolidated revenues of such company,
as the FDIC, in consultation with the Treasury Secretary will establish
by regulation.
ii.
In determining whether a company is a financial company, the
consolidated revenues derived from the ownership or control of a
depository institution are to be included.
2.
A financial company does not include an insured depository
institution (which would be subject to the insolvency regime under
the FDIA).
3.
A Farm Credit System institution, “governmental entity”
(undefined), any Federal Home Loan Bank, Freddie Mac and
Fannie Mae are expressly excluded from the definition of financial
company.
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B.
Covered Subsidiary means a subsidiary of a covered
financial company other than (1) an insured depository
institution, (2) an insurance company or (3) a covered
broker or dealer.
1.
2.
Insurance Company is defined as any entity that is (A)
engaged in the business of insurance; (B) subject to regulation
by a State insurance regulator and (C) covered by a State law
that is designed to specifically deal with the rehabilitation,
liquidation, or insolvency of an insurance company.
Covered Broker or Dealer means a covered financial
company that is a broker or dealer that (A) is registered with
the Securities and Exchange Commission under section 15(b)
of the Securities Exchange Act of 1934 and (B) is a member of
SIPC.
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Systemic Risk Determination Required for
Appointment of the FDIC as Receiver
A.
Vote Based on Written Recommendation Required
1.
2.
3.
On their own initiative or at the request of the Secretary of the
Treasury, the FDIC and the FRB may make a recommendation with
respect to whether the Treasury Secretary should appoint the FDIC
as receiver for a financial company. Such recommendation may be
made upon a 2/3 vote of the members of their respective boards.
Where the financial company or its largest U.S. subsidiary (as
measured by total assets as of the end of the previous calendar
quarter) is a covered broker or dealer, the Securities and Exchange
Commission (the “SEC”) and the FRB, at the request of the Treasury
Secretary or on their own initiative, shall make a recommendation
upon a vote of at least 2/3 of the members of the FRB then sitting and
of the commissioners of the SEC then serving and in consultation
with the FDIC.
If the financial company is an insurance company or its largest U.S.
subsidiary is an insurance company, the designation must be
approved by the Director of the Federal Insurance Office (formed
pursuant to the Dodd-Frank Act) and at least 2/3 of the members of
the FRB and in consultation with FDIC.
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B.
Recommendation Required for Vote
1.
an evaluation of whether the financial company is “in default or in
danger of default”;
The statute defines “in default or in danger of default” as (a) a
case has been, or will likely be commenced promptly with respect
to the financial company under the Bankruptcy Code; (b) the
financial company has incurred, or is likely to incur, losses that
will deplete all or substantially all of its capital, and there is no
reasonable prospect for the company to avoid such depletion; (c)
the assets of the financial company are, or are likely to be, less
than its obligations to creditors and others; or (d) the financial
company is, or is likely to be, unable to pay its obligations (other
than obligations subject to a bona fide dispute) in the normal
course of business.
2.
a description of the effect that the default would have on financial
stability in the U.S.;
3.
a description of the effect the default would have on economic
conditions or financial stability for low income, minority, or
underserved communities;
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4.
a recommendation regarding the nature and extent of action to be
taken under Title II regarding the financial company;
5.
an evaluation of the likelihood of a private sector alternative to
prevent the default of the financial company;
6.
an evaluation of why a case under the Bankruptcy Code is not
appropriate for the financial company;
7.
an evaluation of the effects on creditors, counterparties, and
shareholders of the financial company and other market participants;
and
8.
an evaluation of whether the company satisfies the definition of a
financial company.
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C.
Treasury Secretary Determination
1.
Upon such recommendation, the Treasury Secretary (in consultation with the
President) may make the determination to appoint the FDIC as receiver if he
determines that the following criteria are met:
a. the financial company is “in default or in danger of default;”
b. the failure of the financial company and its resolution under otherwise
applicable Federal or State law would have serious adverse effects on
financial stability in the U.S.;
c. no viable private sector alternative is available to prevent the default of
the financial company;
d. any effect on the claims or interests of creditors, counterparties, and
shareholders of the financial company and other market participants as a
result of the actions to be taken is appropriate, given the impact that any
action taken under Title II would have on financial stability in the U.S.;
e. any ordinarily liquidation would avoid or mitigate such adverse effects,
taking into consideration the effectiveness of the action in mitigating
potential adverse effects on the financial system, the cost to the general
fund of the Treasury, and the potential to increase excessive risk taking
on the part of creditors, counterparties and shareholders in the financial
company;
f.
a Federal regulatory agency has ordered the financial company to convert
all of its convertible debt instruments that are subject to the regulatory
order; and
g. the company satisfies the definition of a “financial company”.
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D.
Notice of Determination
If upon such recommendation the Treasury Secretary determines to
appoint the FDIC as receiver of the covered financial company, the
Treasury Secretary must notify the covered financial company and the
FDIC of such determination.
E.
Appointment of FDIC as Receiver Either Upon Consent of the
Covered Financial Company or Pursuant to Court Order
1.
2.
Consent. If the covered financial company acquiesces or consents to
the appointment of the FDIC as receiver the FDIC will be appointed.
Members of the board of directors of the covered financial company
will not to liable to shareholders or creditors of the covered financial
company for acquiescing or consenting in good faith to the
appointment of the FDIC as receiver.
District Court Petition. If the financial company does not consent, the
Treasury Secretary will file a petition (under seal) with the United
States District Court for the District of Columbia (the “District Court”)
to appoint the FDIC as receiver of the financial company.
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3.
Notice and Hearing. The financial company is provided confidential
notice and opportunity for a confidential hearing before the District Court.
4.
District Court Review. The scope of review is limited to whether the
Treasury Secretary’s determination that the covered financial company is
in default or in danger of default and satisfies the definition of a financial
company is neither arbitrary nor capricious.
If the District Court does not make a determination within 24 hours of
receipt of the petition, then (a) the petition will be granted by operation of
law; (b) the Treasury Secretary must appoint the FDIC as receiver; and
(c) the liquidation under Title II is automatically commenced.
5.
Appeal Process. The U.S. Court of Appeals for the District of Columbia
(the “Court of Appeals”) has jurisdiction for an expedited appeal of the
lower court decision by either the Treasury Secretary or the financial
company.
The U.S. Supreme Court has discretionary jurisdiction to review the
decision of the Court of Appeals on an expedited basis.
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F.
Appointment of the FDIC as Receiver for a Covered Subsidiary
1.
2.
G.
The FDIC may appoint itself as receiver of any covered subsidiary of a
covered financial company that is organized under Federal law or the laws of
any State, if the FDIC and the Treasury Secretary jointly determine that (a) the
covered subsidiary is in default or in danger of default; (b) the action would
avoid or mitigate serious adverse effects on the financial stability or economic
conditions of the U.S.; and (c) the action would facilitate the orderly liquidation
of the covered financial company.
The FDIC has the same powers and rights with respect to the covered
subsidiary as it does with respect to the covered financial company.
Governing Principles for Liquidation of a Covered Financial
Company or a Covered Subsidiary
The liquidation must be conducted in a manner that mitigates financial
systemic risk and minimizes moral hazard so that (a) creditors and
shareholders will bear the losses of the financial company; (b)
management responsible for the financial company’s condition will not be
retained; and (c) the FDIC and other appropriate agencies will take all
steps necessary and appropriate to assure that all parties, including
management and third parties, having responsibility for the financial
company’s condition bear losses consistent with their responsibility,
including actions for damages, restitution, and recoupment of
compensation and other gains not compatible with such responsibility.
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H.
Consultation Required by FDIC with Regulatory Agencies of
the Covered Financial Company and its Covered Subsidiaries
1.
2.
3.
4.
The FDIC is required to consult with the primary financial regulatory
agencies for the covered financial company and its covered
subsidiaries for the purposes of ensuring an orderly liquidation.
The FDIC may consult with or acquire the services of, any outside
experts, as appropriate to inform and aid the FDIC in the orderly
liquidation process.
The FDIC is to consult with the primary financial regulatory agencies
of any subsidiaries of the covered financial company that are not
covered subsidiaries, and coordinate with such regulators regarding
the treatment of such solvent subsidiaries and the separate resolution
of any such insolvent subsidiaries under other governmental
authority, as appropriate.
The FDIC is to consult with the SEC and the SIPC in the case of any
covered financial company for which the FDIC is appointed as
receiver that is a broker or dealer registered with the SEC under
section 15(b) of the Securities Exchange Act and is a member of
SIPC for the purpose of determining whether to transfer to a “bridge
financial company” organized by the FDIC, as receiver, customer
accounts of the covered financial company.
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I.
Funding for Orderly Liquidation
1.
2.
3.
Upon appointment as receiver, the FDIC may in its discretion make
available to the receivership, subject to the conditions in section 206 and
subject to the plan described in section 210(n)(11) of the Dodd-Frank Act,
funds for the orderly liquidation of the covered financial company. The
funds so provided, include funds used for (a) making loans to, or
purchasing any debt obligation of, the covered financial company or any
covered subsidiary; (b) purchasing or guaranteeing against loss the
assets of the covered financial company or any covered subsidiary,
directly or through an entity established by the FDIC for that purpose; (c)
assuming or guaranteeing the obligations of the covered financial
company or any covered subsidiary to one or more third parties; (d)
taking a lien on any or all assets of the covered financial company or any
covered subsidiary, including a first priority lien on all unencumbered
assets of the covered financial company or any covered subsidiary to
secure repayment of any transactions conducted for such funding; (e)
selling or transferring all, or any part of such acquired assets, liabilities, or
obligations of the covered financial company or any covered subsidiary;
and (f) making additional payments pursuant to certain provisions of
section 210 of the Dodd-Frank Act.
All funds so provided are given priority over all other claims.
All funds expended in the liquidation of a financial company must be
recovered from the disposition of assets of the financial company or must
be the responsibility of the financial sector through assessments.
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J.
Orderly Liquidation Fund
1.
2.
The Establishment of the Fund. The “Orderly Liquidation Fund” is a fund
established within the Treasury and made available for the FDIC to borrow
funds to carry out its rights and duties under the Orderly Liquidation Authority.
Borrowing from the Treasury. Following the appointment of the FDIC as
receiver for a covered financial company, the FDIC would have the authority
to fund the cost of an orderly liquidation of a covered financial company by
issuing debt securities to the Treasury Secretary. The maximum amount of
such obligations incurred by the FDIC for each covered financial company
shall be equal to:
a.
b.
3.
Required Repayment. The Treasury Secretary may not provide any funding
to the FDIC unless an agreement is in effect between the Treasury Secretary
and the FDIC that provides:
a.
b.
4.
10% of the total consolidated assets of the covered financial company, based on its
most recent financial statement available, during the 30-day period immediately
following the appointment of the FDIC as receiver; and
90% of the fair value of the total consolidated assets of the covered financial
company that are available for repayment, after such 30-day period.
a specific plan and schedule for repayment of the amount borrowed and
demonstrates that the FDIC will be able to repay the outstanding balance to the
Treasury and the interest accruing on such balance within 60 months (or such longer
period as approved by the Treasury).
Imposition of Assessments. The FDIC is required to impose risk-based
assessments if such assessments are needed to repay the obligations of the
FDIC to the Treasury within the 60 months.
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K.
Time Limit on Receivership Authority
1.
The appointment of the FDIC as receiver is to terminate 3 years after
the date of its appointment as receiver, subject to
a.
b.
c.
extension by the FDIC for up to 1 additional year, if the Chairperson of the FDIC
determines and certifies in writing to the Committee on Banking, Housing, and Urban
Affairs of the Senate Committee on Financial Services of the House of
Representatives that the continuation of the receivership is necessary (i) to (A)
maximize the net present value return from the sale or other disposition of the assets
of the covered financial company or (B) minimize the amount of loss realized upon
the sale or other disposition of the assets of the covered financial company and (ii) to
protect the stability of the financial system;
extension of another year if the Chairperson of the FDIC, with the concurrence of the
Treasury Secretary, submit the certifications referred to above: and
further extension solely for the purpose of completing ongoing litigation in which the
FDIC as receiver is a party provided that the appointment of the FDIC terminates not
later than 90 days after the completion of the litigation if (a) the Council determines,
inter alia, that the FDIC used its best efforts to conclude the receivership within five
years and the Council determines that the completion of longer-term responsibilities
in the ongoing litigation justifies the need for an extension.
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L.
Rule Making
The FDIC, in consultation with the Council, must adopt
regulations to implement Title II, including regulations with respect
to the rights, interests and priorities of creditors, counterparties,
security entitlement holders, or other persons with respect to any
covered financial company or any assets or other property of or
held by such covered financial company and address the potential
for conflicts of interest between or among individual receiverships
established under Title II or under the FDIA. To the extent
possible, the FDIC must seek to harmonize regulations
implementing Title II with the insolvency laws that would
otherwise apply to the covered financial company.
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Provisions Applying to All
Orderly Liquidations
Section 210 of the Act addresses a broad variety of topics
concerning the powers and duties of the FDIC in the liquidation
proceedings as well as the rights of creditors with respect to, among
other things, the treatment of rights of setoff, avoidance actions,
transfer and repudiation of executory contracts, transfer and
repudiation of qualified financial contracts, allowance and priority of
payment of claims. Some of these provisions adopt the language or
approach taken under the Bankruptcy Code while others adopt the
language or approach of the FDIA. Still other provisions address
matters unique to Title II. A sampling of notable provisions follows:
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A.
Certain Powers of FDIC as Receiver
1.
2.
3.
4.
5.
Successor to covered financial company. The FDIC succeeds to all
rights, titles, powers and privileges of the covered financial company and
its assets, and of any stockholder, member, officer or director of such
company.
Power to form bridge financial company. The FDIC may form a bridge
financial company in order to transfer assets of a covered financial
company or a covered subsidiary and to have the bridge financial
company succeed to and assume certain rights, powers, authorities and
privileges of the covered financial company or covered subsidiary.
Mergers and transfers of assets. The FDIC, as receiver for the covered
financial company may merge the covered financial company or transfer
any assets or liabilities of or held by the covered financial company
without obtaining approval or consent with respect to the transfer, subject
to any Federal agency approval and Federal antitrust review.
Coordination with foreign financial authorities for foreign assets or
operations. Where the covered financial company has assets or
operations in a country other than the U.S., the FDIC must coordinate, to
the maximum extent possible, with the appropriate foreign financial
authorities regarding the orderly liquidation of the covered financial
company.
Choice of noninsolvency law. Except as otherwise provided in Title II, the
applicable noninsolvency law shall be determined by noninsolvency
choice of law rules otherwise applicable to the claims, rights, titles,
persons, or entities at issue.
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6.
Subpoena and stay powers.
a.
b.
B.
The FDIC as receiver shall have the same subpoena power as
established under section 8(n) of the FDIA, as if the covered financial
company were an insured depositary institution.
Unlike the Bankruptcy Code, the OLA does not impose a blanket
automatic stay, but the FDIC as receiver may seek a stay of litigation
pending against the covered financial company for a period not to exceed
90 days, which stay shall be granted by such court against all parties to
the litigation.
Certain FDIC Powers and Related Creditors’ Rights
1.
Rights of Setoff. Creditors of a covered financial company retain setoff rights
on terms generally similar to those applicable under the Bankruptcy Code.
However, the FDIC as receiver may sell or transfer any assets to a third party
or bridge financial company free and clear of the setoff rights of any party
(thereby destroying mutuality), except that such party shall be entitled to a
claim, subordinate to the claims payable for the administrative expenses of the
receiver, any amounts owed to the U.S. (unless the U.S. agrees otherwise)
and wages, salaries or commissions and other amounts owed to employees
up to $11,725 per individual earned not later than 180 days before the
appointment of the FDIC as receiver.
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2.
Avoidance Powers
a.
b.
c.
d.
The FDIC as receiver for a covered financial company may avoid
preferential transfers substantially on terms similar to those
applicable under the Bankruptcy Code.
The FDIC as receiver for a covered financial company may avoid
fraudulent transfers on terms similar to those applicable under the
Bankruptcy Code.
The FDIC as receiver may recover post receivership transfers not
authorized by the FDIC.
To the extent that a transfer is avoided under a, b, or c, the FDIC
may recover property transferred, or if a court so orders, the value
of such property at the time of such transfer from (i) the initial
transferee of such transfer or the person for whose benefit such
transfer was made; or (ii) any immediate or mediate transferee.
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e.
The rights of the FDIC are superior to those of a trustee or any other
party (other than a Federal agency) under the Bankruptcy Code.
Rights and defenses of transferees or obligees include the following:
f.
i.
ii.
iii.
The FDIC may not recover from (x) any transferee that takes for
value, including in satisfaction of or to secure a present or antecedent
debt, in good faith, and without knowledge of the voidability of a
transfer avoided or (y) any mediate or immediate good faith
transferee of such transfer;
a transferee or obligee from which the FDIC seeks to recover a
transfer or avoid an obligation under the foregoing has the same
defenses available to a transferee or obligee from which a trustee
seeks to recover a transfer or avoid an obligation under section 547,
548 and 549 of the Bankruptcy Code;
The FDIC’s authority to recover a transfer or avoid an obligation is
subject to section 546(b) (timing of post OLA perfection of an interest
in property), 546(c) (reclamation), 547(c) (including,
contemporaneous exchange for new value, ordinary course of
business and subsequent new value defenses to preferential
transfers) and section 548(c) (rights of good faith transferee for value)
of the Bankruptcy Code.
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3.
FDIC Repudiation of Executory Contracts and Leases
a.
b.
c.
Subject to certain conditions, the FDIC may disaffirm or repudiate any
contract or lease to which the covered financial company is a party
within a “reasonable time.”
As under the FDIA, damages for disaffirmance or repudiation of an
executory contract actual direct compensatory damages determined
as of the date of the appointment of the FDIC as receiver. The claim
does not include punitive or exemplary damages or damages for lost
profits.
Damages for leases in which the covered financial company is the
lessee of the lease are limited to accrued rent and amounts owed to
the date that notice of disaffirmance or repudiation is mailed or
becomes effective unless the lessor is in default of the lease. The
lessee is not entitled to damages under any acceleration clause or
other penalty provision.
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4.
FDIC Repudiation of Qualified Financial Contracts
As under the FDIA, damages for disaffirmance or repudiation of a
qualified financial contract will be limited to actual direct
compensatory damages which will include normal and reasonable
costs of cover or other reasonable measures of damages utilized
in the industries for such contract determined as of the date of
disaffirmance or repudiation.
5.
FDIC Repudiation or Disaffirmance of Debt Obligations
In the case of debt obligations for borrowed money or evidenced
by a security, actual direct compensatory damages shall be no
less than the amount lent plus accrued interest plus any accreted
original issue discount as of the date of appointment of the FDIC
as receiver and to the extent that an allowed secured claim is
secured by property the value of which is greater than the amount
of such claim and any accrued interest through the date of
repudiation or disaffirmance, such accrued interest.
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6.
FDIC Repudiation or Disaffirmance of Contingent Obligation
In the case of a contingent obligation of a covered financial company
consisting of any obligation under a guarantee, letter of credit, loan
commitment, or similar credit obligation, the FDIC may, by rule or
regulation, prescribe that actual direct compensatory damages shall be
no less than the estimated value of the claim as of the date the FDIC was
appointed receiver of the covered financial company, as such value is
measured based on the likelihood that such contingent claim would
become fixed and the probable magnitude thereof.
7.
Safe Harbor Provisions for Qualified Financial Contracts
These provisions are similar to the provisions of the FDIA and allow
termination, liquidation and acceleration of such contracts, provided that
the right to terminate, liquidate or net such contract solely by reason of,
or incidental to, the appointment of the FDIC as receiver (or the
insolvency or financial condition of the covered financial company) may
not occur until (a) 5:00 pm on the business day following the date of the
appointment of the receiver or (b) receipt of notice of transfer of the
qualified financial contract. In addition, any payment or delivery
obligations otherwise due from a party pursuant to the qualified financial
contract shall be suspended from the time the FDIC is appointed as
receiver until the earlier of (a) the time such party receives notice that
such contract has been transferred or (b) 5:00 pm on the business day
following the date of appointment of the FDIC as receiver.
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C.
Determination and Treatment of Claims
1.
Claims Determination Process
a.
The process for determining claims by the FDIC as receiver is generally similar to the
process contained in the FDIA. A proof of claim filing (bar) date is set on notice. The
FDIC within a specified period thereafter provides notice to claimants of its
determination whether a claim, as filed, is to be allowed or disallowed in whole or in
part and the reasons for any disallowance, including any claim of security,
preference, setoff or priority which is not proved to the FDIC’s satisfaction.
b.
If a claim is disallowed in whole or in part the creditor must bring an action
(or continue an action pending prior to the appointment of the FDIC, as receiver) in
the district or territorial court of the United States within which the principal place of
business of the covered financial company is located within a prescribed period of
time after notice of disallowance. Failure to bring such action within the prescribed
period results in the disallowance becoming final with the claimant having no further
rights or remedies with respect to the claim.
c.
The Dodd-Frank Act provides an alternate procedure for expedited determination of
claims for any claimant that alleges that (i) it has a legally valid and enforceable or
perfected security interest in property of a covered financial company, or control
of any legally valid and enforceable security entitlement in respect of any asset held
by the covered financial company and (ii) that irreparable injury will occur if the
claims procedure is followed. In the case of disallowance of such claim, or portion
thereof, by the FDIC, the claimant can file suit within a prescribed period to seek to
have its claim allowed.
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2.
Payment of Claims
A creditor of a covered financial company shall in no event
receive less than the amount the creditor would receive had the
company been liquidated under chapter 7 of the Bankruptcy
Code, or, if applicable, SIPA proceeding.
3.
Priority of Unsecured Claims
Unsecured claims that are proven to the satisfaction of the
FDIC have the following priority subject to specific exceptions
(such as certain rights relating to setoff)
a.
b.
c.
administrative expenses of the FDIC, as receiver;
any amounts owed to the U.S., unless the U.S. agrees or
consents otherwise;
wages, salaries or commissions, including vacation, severance,
and sick leave pay earned by an individual (other than senior
executives and directors of the covered financial company
referred to in (g) below), but only to the extent of $11,725 for each
individual (as indexed for inflation, by regulation of the FDIC)
earned not later than 180 days before the date of appointment of
the FDIC as receiver;
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d.
e.
f.
g.
h.
contributions owed to employee benefit plans arising from the services
rendered not later than 180 days before the date of appointment of the
FDIC as receiver, to the extent of the number of employees covered by
each such plan, multiplied by $11,725 (as indexed for inflation, by
regulation of the FDIC) less the aggregate amount paid to such
employees under (c) above, plus the aggregate amount paid by the
receivership on behalf of such employees to any other employee benefit
plan;
any other general or senior liability of the covered financial company (not
the subject of (f), (g), or (h);
any obligation subordinated to general creditors that is not listed in (g) or
(h) below;
any wages, salaries, or commissions including vacation, severance, or
sick leave pay earned, owed to senior executives and directors of the
covered financial company;
any obligations to shareholders, members, general partners, limited
partners, or other persons with interests in the equity of the covered
financial company arising as a result of their status as shareholders,
members, general partners, limited partners, or other persons with
interests in the equity of the covered financial company.
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4.
Post-Receivership Financing Priority
In the event that the FDIC, as receiver, is unable to obtain unsecured credit for the
covered financial company from commercial sources, the FDIC may obtain credit
or incur debt that will have priority over any or all administrative expenses of the
receiver.
5.
Treatment of Similarly Situated Creditors, Additional Payments and Recoupment
Assessments
As a general rule, similarly situated creditors are to be treated the same. However,
the FDIC may take any action that does not comply with that rule if the FDIC
determines that such action is necessary, including making “additional payments”
to creditors (a) to maximize the value of assets of the covered financial company;
(b) to initiate and continue operations essential to implementation of the
receivership or any bridge financial company; (c) to maximize the present value
return from the sale or other disposition of the assets of the covered financial
company; or (d) to minimize the amount of any loss realized upon the sale or other
disposition of the assets of the covered financial company.
Claimants who benefit from additional payments are subject to recoupment
assessments. The recoupment assessment is to recover on a cumulative basis,
the difference between (a) the aggregate value the claimant received from the
FDIC on a claim pursuant to Title II as the date the value was received and (b) the
value the claimant was entitled to receive from the FDIC solely from the proceeds
of the liquidation of the covered financial company under Title II.
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