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Title II Orderly Liquidation Authority (

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Title: Slide 1 Author: Information Technology Department Last modified by: Troutman Sanders LLP Created Date: 7/22/2008 7:49:37 PM Document presentation format – PowerPoint PPT presentation

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Title: Title II Orderly Liquidation Authority (


1
Title IIOrderly Liquidation Authority (OLA)
2
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).

2
3
  • 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.

3
4
  • 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.

4
5
Companies That May Be Subject to the Dodd-Frank
Act
  • Covered Financial Company means a financial
    company for which a determination has been made
    by the Treasury Secretary to appoint the FDIC as
    receiver.
  • 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
  • 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).

5
6
  • 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.
  • 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.
  • A financial company does not include an insured
    depository institution (which would be subject to
    the insolvency regime under the FDIA).
  • 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.

6
7
  • 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.
  • 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.

7
8
Systemic Risk Determination Required for
Appointment of the FDIC as Receiver
  • Vote Based on Written Recommendation Required
  • 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.

8
9
  • Recommendation Required for Vote
  • 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.
  • a description of the effect that the default
    would have on financial stability in the U.S.
  • a description of the effect the default would
    have on economic conditions or financial
    stability for low income, minority, or
    underserved communities

9
10
  • a recommendation regarding the nature and extent
    of action to be taken under Title II regarding
    the financial company
  • an evaluation of the likelihood of a private
    sector alternative to prevent the default of the
    financial company
  • an evaluation of why a case under the Bankruptcy
    Code is not appropriate for the financial
    company
  • an evaluation of the effects on creditors,
    counterparties, and shareholders of the financial
    company and other market participants and
  • an evaluation of whether the company satisfies
    the definition of a financial company.

10
11
  • Treasury Secretary Determination
  • 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
  • the financial company is in default or in danger
    of default
  • 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.
  • no viable private sector alternative is available
    to prevent the default of the financial company
  • 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.
  • 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
  • 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
  • the company satisfies the definition of a
    financial company.

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12
  • 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.
  • Appointment of FDIC as Receiver Either Upon
    Consent of the Covered Financial Company or
    Pursuant to Court Order
  • 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.

12
13
  • Notice and Hearing. The financial company is
    provided confidential notice and opportunity for
    a confidential hearing before the District Court.
  • District Court Review. The scope of review is
    limited to whether the Treasury Secretarys
    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.
  • 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.

13
14
  • Appointment of the FDIC as Receiver for a Covered
    Subsidiary
  • 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 companys 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 companys
    condition bear losses consistent with their
    responsibility, including actions for damages,
    restitution, and recoupment of compensation and
    other gains not compatible with such
    responsibility.

14
15
  • Consultation Required by FDIC with Regulatory
    Agencies of the Covered Financial Company and its
    Covered Subsidiaries
  • 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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16
  • Funding for Orderly Liquidation
  • 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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  • Orderly Liquidation Fund
  • 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
  • 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.
  • 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 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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18
  • Time Limit on Receivership Authority
  • The appointment of the FDIC as receiver is to
    terminate 3 years after the date of its
    appointment as receiver, subject to
  • 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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19
  • 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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20
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

20
21
  • Certain Powers of FDIC as Receiver
  • 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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  • Subpoena and stay powers.
  • 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
  • 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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  • Avoidance Powers
  • 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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  • 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
  • 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 FDICs 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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  • FDIC Repudiation of Executory Contracts and
    Leases
  • 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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  • 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.
  • 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.

26
27
  • 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.
  • 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) 500 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) 500 pm
    on the business day following the date of
    appointment of the FDIC as receiver.

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  • Determination and Treatment of Claims
  • Claims Determination Process
  • 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
    FDICs satisfaction.
  • 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.
  • 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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  • 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.
  • 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)
  • 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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  1. 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
  2. any other general or senior liability of the
    covered financial company (not the subject of
    (f), (g), or (h)
  3. any obligation subordinated to general creditors
    that is not listed in (g) or (h) below
  4. any wages, salaries, or commissions including
    vacation, severance, or sick leave pay earned,
    owed to senior executives and directors of the
    covered financial company
  5. 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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  • 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. 
  • 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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