[Federal Register Volume 76, Number 56 (Wednesday, March 23, 2011)]
[Proposed Rules]
[Pages 16324-16345]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-6705]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 380
RIN 3064-AD73
Orderly Liquidation Authority
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
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[[Page 16325]]
SUMMARY: The FDIC is proposing and requests comments on a rule that
would implement certain provisions of its authority to resolve covered
financial companies under Title II of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (the ``Dodd-Frank Act'' or the ``Act'').
This proposed rule (``Proposed Rule'') builds on the interim final rule
published by the FDIC on January 25, 2011 (``Interim Final Rule'') to
address additional provisions of Title II. The Proposed Rule addresses
the following issues: the definition of a ``financial company'' subject
to resolution under Title II by establishing criteria for determining
whether a company is ``predominantly engaged in activities that are
financial in nature or incidental thereto;'' recoupment of compensation
from senior executives and directors, in limited circumstances, as
provided in section 210(s) of the Dodd-Frank Act; application of the
power to avoid fraudulent or preferential transfers; the priorities of
expenses and unsecured claims; and the administrative process for
initial determination of claims and the process for judicial
determination of claims disallowed by the receiver.
DATES: Written comments must be received by the FDIC not later than May
23, 2011.
ADDRESSES: You may submit comments by any of the following methods:
Agency Web Site: http://www.fdic.gov/regulations/laws/federal/propose.html. Follow instructions for submitting comments on
the Agency Web Site.
E-mail: [email protected]. Include ``RIN 3064-AD73'' in
the subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.
Hand Delivery/Courier: Guard station at the rear of the
550 17th Street Building (located on F Street) on business days between
7 a.m. and 5 p.m. (EDT).
Federal eRulemaking Portal: http://www.regulations.gov/.
Follow the instructions for submitting comments.
Public Inspection: All comments received will be posted
without change to http://www.fdic.gov/regulations/laws/federal/propose.html including any personal information provided. Paper copies
of public comments may be ordered from the Public Information Center by
telephone at (703) 562-2200 or 1-877-275-3342.
FOR FURTHER INFORMATION CONTACT: Marc Steckel, Associate Director,
Division of Insurance and Research, 202-898-3618; or R. Penfield
Starke, Senior Counsel, Legal Division, (703) 562-2422. For questions
to the Legal Division concerning the following parts of the Proposed
Rule contact:
Definition of predominantly engaged in financial activities: Ryan
K. Clougherty, Senior Attorney (202) 898-3843.
Avoidable transfer provisions: Phillip E. Sloan, Counsel (703) 562-
6137.
Compensation recoupment: Patricia G. Butler, Counsel (703) 516-
5798.
Subpart A--Priorities of Claims: Elizabeth Falloon, Counsel (703)
562-6148.
Subpart B--Receivership Administrative Claims Procedures: Thomas
Bolt, Supervisory Counsel (703) 562-2046.
SUPPLEMENTARY INFORMATION:
I. Background
The Dodd-Frank Act was enacted on July 21, 2010. Title II of the
Dodd-Frank Act provides for the appointment of the FDIC as receiver of
a covered financial company following the prescribed recommendation,
determination and judicial review process set forth in the Act. Title
II outlines the process for the orderly liquidation of such a covered
financial company following the FDIC's appointment as receiver and
provides for additional implementation of the orderly liquidation
authority by rulemaking. The Proposed Rule is intended to provide
clarity and certainty with respect to how key components of the orderly
liquidation authority will be implemented and to ensure that the
liquidation process under Title II reflects the Dodd-Frank Act's
mandate of transparency in the liquidation of covered financial
companies. Among the significant issues addressed in the Proposed Rule
are the priority for the payment of claims and the process for the
determination of claims by the receiver and for seeking a judicial
adjudication of any claims disallowed in whole or in part. While it is
not expected that the FDIC will be appointed as receiver for a covered
financial company in the near future, it is important for the FDIC to
have rules in place in a timely manner in order to allow stakeholders
to plan transactions going forward.
The Proposed Rule is promulgated under section 209 of the Act which
authorizes the FDIC, in consultation with the Financial Stability
Oversight Council, to prescribe such rules and regulations as the FDIC
considers necessary or appropriate to implement Title II. Section 209
of the Act also provides that, to the extent possible, the FDIC shall
seek to harmonize such rules and regulations with the insolvency laws
that otherwise would apply to a covered financial company.
This is the second rulemaking for the FDIC under section 209. On
October 19, 2010, the FDIC published in the Federal Register a notice
of proposed rulemaking to implement certain orderly liquidation
provisions of Title II. That rulemaking culminated in the Interim Final
Rule published on January 25, 2011, to be codified at 12 CFR 380.1-
380.6, that addressed discrete topics that were critical for initial
guidance for the financial industry, including the payment of similarly
situated creditors, the honoring of personal services contracts, the
recognition of contingent claims, the treatment of any remaining
shareholder value in the case of a covered financial company that is a
subsidiary of an insurance company, and limitations on liens that the
FDIC may take on the assets of a covered financial company that is an
insurance company or covered subsidiary.
The October 19, 2010 notice of proposed rulemaking solicited
comments not only on the first proposed rule but also on more general
aspects of the orderly liquidation authority of Title II. This comment
period ended on January 18, 2011. These comments have been considered
with respect to the determination of the scope and contents of the
Proposed Rule.
The Proposed Rule continues to develop the framework begun with the
Interim Final Rule. While the Interim Final Rule addressed only certain
discrete issues under Title II, the Proposed Rule enhances the initial
framework by addressing broader issues that define the rights of
creditors in Title II receiverships. For example, while the Interim
Final Rule specified the treatment of ``similarly situated creditors''
in Sec. 380.2, it did not address the treatment of creditors generally
within the overall structure provided by Title II for the payment of
creditors. The Proposed Rule takes the next step by defining the
priorities of payment for creditors in a single rule clarifying the
meaning of ``administrative expenses'' and ``amounts owed to the United
States,'' detailing the priority of setoff claims, specifying how post-
insolvency interest will be paid, and clarifying the payment of claims
for contracts and agreements expressly assumed by a bridge financial
company. While the Proposed Rule does not alter the rules adopted by
the Interim Final Rule, certain subsections of that latter rule likely
will be incorporated into Subpart A on priorities when the Proposed
Rule is finalized in order to provide greater
[[Page 16326]]
thematic coherence. New Subpart B addresses another key element of
creditor rights by specifying the process for initial determination of
claims and the steps necessary to seek a judicial decision on any
disallowed claims. As a result, the Proposed Rule will provide a
``roadmap'' for creditors to better understand their substantive and
procedural rights under Title II by defining key elements determining
how their claims will be determined and in what priority they will be
paid. The discrete issues addressed in the IFR should be viewed as
components that fit within this broader framework.
Other provisions of the Proposed Rule address other foundational
elements of Title II. Section 380.8 of the Proposed Rule helps define
which companies may be subject to resolution under Title II, by
clarifying the meaning of ``financial company'' in Section 201 of the
Dodd-Frank Act. Section 380.7 and the amendments to section 380.1 help
define how compensation may be clawed back from senior executives and
directors responsible for the failure of the covered financial company
under section 210(s) of the Dodd-Frank Act. Section 380.9 of the
Proposed Rule will clarify the application of the receiver's powers to
avoid fraudulent and preferential transfers to ensure they conform to
the similar powers under the Bankruptcy Code.
Some comments revealed unfamiliarity with the FDIC's resolution
process by stakeholders outside the banking industry. By elaborating on
the details of the orderly liquidation process, the Proposed Rule seeks
to explain the role of the FDIC as receiver for a covered financial
company. While the orderly liquidation process under the Dodd-Frank Act
resembles the process the FDIC undertakes in the resolution of insured
depository institutions in many respects, and reflects the experience
developed by the FDIC in resolving those institutions, these
regulations implement newly enacted provisions of the Dodd-Frank Act
and do not necessarily inform or interpret the provisions of the
Federal Deposit Insurance Act, 12 U.S.C. 1811 et seq. (``FDI Act''),
and the law governing the resolution of failed insured depository
institutions. Thus, some provisions implementing the Dodd-Frank Act may
expand the rights and duties of parties with an interest in the
resolution, or otherwise provide rights and duties that differ from
those under the FDI Act.
A common thread among many comments was the nature of the
relationship between the orderly liquidation process under the Dodd-
Frank Act and the Bankruptcy Code. Congress mandated that, to the
extent possible, the FDIC will harmonize the rules adopted under
section 209 of the Act with the Bankruptcy Code or otherwise applicable
insolvency laws. While acknowledging certain express differences
between the Title II orderly liquidation process and other insolvency
regimes, this Proposed Rule was prepared with this statutory mandate in
mind.
Finally, many comments emphasized the importance of allowing
sufficient time in the rulemaking process to fully consider the complex
issues raised under the Dodd-Frank Act. This Proposed Rule is a second
incremental step in the rulemaking process and will invite input from
stakeholders through additional questions posed as part of the Notice
of Proposed Rulemaking. Additional rulemaking will follow, including
certain rules required by the Act, such as rules governing receivership
termination, receivership purchaser eligibility requirements, records
retention requirements, as well as the orderly resolution of broker-
dealers, including the priority scheme and claims process applicable to
broker-dealers.
II. The Proposed Rule
Companies Predominantly Engaged in Financial Activities
Section 380.8 of the Proposed Rule establishes standards for
determining if a company is predominantly engaged in financial
activities. If a company is determined to be predominantly engaged in
such activities for purposes of the definition of ``financial company''
under Title II of the Act, it may be subject to the orderly liquidation
provisions of Title II.
Section 201(a)(11) of the Dodd-Frank Act defines ``financial
company,'' for purposes of Title II of the Act, as any company
incorporated or organized under any provision of Federal law or the
laws of any State that is: (i) A bank holding company, as defined in
section 2(a) of the Bank Holding Company Act of 1956 (``BHC Act'');
(ii) a nonbank financial company supervised by the Board of Governors
of the Federal Reserve System (``Board of Governors''); (iii) any
company that is predominantly engaged in activities that the Board of
Governors has determined are financial in nature or incidental thereto
for purposes of section 4(k) of the BHC Act,\1\ or (iv) any subsidiary
of such companies that is predominantly engaged in activities that the
Board of Governors has determined are financial in nature or incidental
thereto for purposes of section 4(k) of the BHC Act, other than a
subsidiary that is an insured depository institution or insurance
company.\2\
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\1\ 12 U.S.C. 1843(k).
\2\ Section 201(a)(11) also provides that ``financial company''
does not include Farm Credit System institutions chartered under and
subject to the provisions of the Farm Credit Act of 1971, as amended
(12 U.S.C. 2001 et seq.), or governmental or regulated entities as
defined under section 1303(20) of the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4502(20)).
Consistent with section 201(b) of the Dodd-Frank Act, the criteria
in the Proposed Rule for determining if a company is predominantly
engaged in financial activities would not apply to such entities.
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Section 201(b) of the Dodd-Frank Act provides that, for the
purposes of defining the term ``financial company'' under section
201(a)(11), ``[n]o company shall be deemed to be predominantly engaged
in activities that the Board of Governors has determined are financial
in nature or incidental thereto for purposes of section 4(k) of the
[BHC Act], if the consolidated revenues of such company from such
activities constitute less than 85 percent of the total consolidated
revenues of such company, as the Corporation, in consultation with the
Secretary [of Treasury], shall establish by regulation. In determining
whether a company is a financial company under [Title II], the
consolidated revenues derived from the ownership or control of a
depository institution shall be included.''
Accordingly, the FDIC is issuing a regulation that defines the term
``predominantly engaged'' and creates a new definition of ``financial
activity'' to encompass the activities the Dodd-Frank Act includes in
the 85 percent calculation. The FDIC consulted with the Board of
Governors during the development of this section of the Proposed Rule.
The Board of Governors has issued a notice of proposed rulemaking
entitled ``Definitions of `Predominantly Engaged in Financial
Activities' and `Significant' Nonbank Financial Company and Bank
Holding Company'' (Board of Governors' NPR).\3\ The Board of Governors'
NPR addresses the definition of ``predominantly engaged in financial
activities'' for purposes of determining if an entity is a nonbank
financial company under Title I of the Dodd-Frank Act.
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\3\ 76 FR 7731 (February 11, 2011).
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Definition of Predominantly Engaged
The Proposed Rule defines a company as being predominantly engaged
in activities that the Board of Governors has determined are financial
in nature or incidental thereto for purposes of
[[Page 16327]]
section 4(k) of the BHC Act if: (1) At least 85 percent of the total
consolidated revenues of the company for either of its two most recent
fiscal years were derived, directly or indirectly, from financial
activities or (2) based upon all the relevant facts and circumstances,
the Corporation determines that the consolidated revenues of the
company from financial activities constitute 85 percent or more of the
total consolidated revenues of the company. As required under section
201(b) of the Act, the FDIC consulted with the Secretary of the
Treasury during the development of this portion of the Proposed
Rule.\4\
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\4\ The FDIC also contacted the Board of Governors and other
voting members of the Financial Stability Oversight Council (FSOC)
in the development of this section. The FDIC notes that Title I
includes a separate definition of ``nonbank financial company'' that
is used for purposes of that Title's provisions related to enhanced
supervision by the Board of Governors following a systemic
determination by the FSOC. The Board of Governors has responsibility
for issuing regulations that define the term ``predominantly engaged
in financial activities'' for purposes of Title I. The Title I
definition of nonbank financial company does not take into account
``incidental'' activities, but does include an asset test in
addition to a revenue test. See, 12 U.S.C. 5523 et seq.; and 12
U.S.C. 5531.
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The case-by-case determination provided for in (2) above is
designed to provide the FDIC the flexibility, in appropriate
circumstances, to consider whether a company meets the 85 percent
consolidated revenue test based on the full range of information that
may be available concerning the company's activities (including
information obtained from other Federal or state financial supervisors
or agencies) at any time. For example, a company's revenues, as well as
the risks the company may pose to the U.S. financial system, may change
significantly and quickly as a result of various types of transactions
or actions, such as a merger, consolidation, acquisition, establishment
of a new business line, or the initiation of a new activity. Moreover,
these transactions and actions may occur at any time during a company's
fiscal year and, accordingly, the effects of the transactions or
actions may not be reflected in the year-end consolidated financial
statements of the company for several months. The Proposed Rule allows
the FDIC to promptly consider the effect of changes in the nature or
mix of a company's activities as a result of such a transaction or
action where such changes may affect whether the company should be a
financial company for purposes of Title II. A determination based on
the facts and circumstances would be made by the FDIC Board of
Directors, unless delegated. The FDIC expects to conduct such a case-
by-case review only when justified by the circumstances.
While section 201(b) of the Dodd-Frank Act provides that a
company's consolidated revenues are to be used in determining whether
the company is predominantly engaged in financial activities, it does
not specify the time period over which such consolidated revenues
should be considered in making such a determination. The FDIC is
proposing that either of the last two fiscal years is the appropriate
time period for determining whether a company meets the 85 percent
revenue test (the ``two-year test''). The FDIC believes that the two-
year test provides appropriate flexibility in determining whether a
company is predominantly engaged in financial activities. The two-year
test would capture, for example, a company whose revenues have
traditionally met or exceeded the 85 percent consolidated revenue test
but that experienced a temporary decline in such revenues during its
last fiscal year. Additionally, the two-year test is similar to a
proposal recently promulgated by the Board of Governors that addresses
whether a company is predominantly engaged in financial activities for
the purposes of determining if such a company is a nonbank financial
company under Title I.\5\
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\5\ See, 76 FR 7731 (February 11, 2001).
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Under the Proposed Rule, a company would not be considered to be
predominantly engaged in financial activities under the two-year test,
and thus would not be a financial company, if the level of such
company's financial revenues were below the 85 percent consolidated
revenue threshold in both of its two most recent fiscal years. The
Proposed Rule defines ``total consolidated revenues'' as the total
gross revenues of a company and all entities subject to consolidation
by the company for a fiscal year, as determined in accordance with
applicable accounting standards. ``Applicable accounting standards'' is
defined under the Proposed Rule as the accounting standards a company
uses in the ordinary course of business in preparing its consolidated
financial statements, provided those standards are: (i) U.S. generally
accepted accounting principles; (ii) International Financial Reporting
Standards; or (iii) such other accounting standards that the FDIC
determines to be appropriate.
The FDIC believes the Proposed Rule's approach to calculating
consolidated revenue is appropriate for several reasons. First, the
approach reduces the potential for companies to arbitrage the 85%
consolidated revenue test by changing the accounting standards used for
purposes of this Proposed Rule. Specifically, the Proposed Rule
provides that the accounting standards used for calculating total
consolidated revenues must be the same standards that the company uses
in the ordinary course of its business in preparing its consolidated
financial statements. Second, by calculating consolidated revenues
using the accounting standards that a company uses in the ordinary
course of its business, the Proposed Rule also reduces the potential
regulatory burden on companies. Finally, the FDIC believes the
methodology for calculating consolidated revenues under the Proposed
Rule is likely to provide an accurate basis for determining whether
companies are financial companies for the purposes of Title II.
Definition of Financial Activity
The Proposed Rule defines ``financial activity'' to include: (i)
Any activity, wherever conducted, described in section 225.86 of the
Board of Governors' Regulation Y or any successor regulation; \6\ (ii)
ownership or control of one or more depository institution[s]; and
(iii) any other activity, wherever conducted, determined by the Board
of Governors in consultation with the Secretary of the Treasury, under
section 4(k)(1)(A) of the BHC Act,\7\ to be financial in nature or
incidental to a financial activity.
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\6\ See, 12 CFR 225.86.
\7\ See, 12 U.S.C. 1843(k)(1)(A).
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Section 225.86 of the Board of Governors' Regulation Y references
the activities that have been determined to be financial in nature or
incidental thereto under section 4(k) of the BHC Act. Section 4(k) of
the BHC Act authorizes the Board of Governors, in consultation with the
Secretary of the Treasury, to determine in the future that additional
activities are ``financial in nature or incidental thereto.'' \8\ The
Proposed Rule recognizes that the Board of Governors may determine that
additional activities, beyond those already identified in Sec. 225.86
of the Board of Governors' Regulation Y, are financial or incidental
activities for the purposes of section 4(k) of the BHC Act. Upon such a
determination with respect to an activity, the Proposed Rule includes
any revenues derived from such activity as revenues derived from
financial or incidental activities.\9\
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\8\ 12 U.S.C. 1843(k)(1) and (2).
\9\ Besides authorizing financial holding companies to engage in
activities that have been determined to be ``financial in nature or
incidental thereto'' section 4(k)(1) of the BHC Act also permits a
financial holding company to engage in activities the Board of
Governors has determined to be ``complementary to financial
activities and do not pose a substantial risk to the safety and
soundness of depository institutions or the financial system
generally.'' See, 12 U.S.C. 1843(k)(1)(B). Because section
201(a)(11) refers only to activities that have been determined by
the Board of Governors to be financial in nature or incidental
thereto under section 4(k), activities that have been (or are)
determined to be ``complementary'' to financial activities under
section 4(k) are not considered financial or incidental activities
for purposes of determining whether a company is predominantly
engaged in activities that are financial in nature or incidental
thereto under section 201(a)(11) of the Dodd-Frank Act.
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[[Page 16328]]
Neither section 201(a)(11) nor section 201(b) of the Dodd-Frank Act
impose any additional conditions beyond those that may apply under
section 4(k) of the BHC Act or the Board of Governors' Regulation Y for
an activity to be considered a financial or incidental activity for
purposes of determining whether a company is a financial company under
Title II. Accordingly, the Proposed Rule broadly defines ``financial
activities'' to include all financial or incidental activities,
regardless of: (i) Where the activity is conducted by a company; (ii)
whether a bank holding company or a foreign banking organization could
conduct the activity under some legal authority other than section 4(k)
of the BHC Act; and (iii) whether any Federal or state law other than
section 4(k) of the BHC Act may prohibit or restrict the conduct of the
activity by a bank holding company.
For example, all investment activities that are permissible for a
financial holding company under the merchant banking authority in
section 4(k)(4)(H) of the BHC Act and the Board of Governors'
implementing regulations \10\ are considered financial activities under
the Proposed Rule even if some portion of those activities could be
conducted by a financial holding company under another or more limited
investment authority (such as the authority in section 4(c)(6) of the
BHC Act,\11\ which allows bank holding companies to make passive, non-
controlling investments in any company if the bank holding company's
aggregate investment represents less than five percent of any class of
voting securities and less than 25 percent of the total equity of the
company). Likewise, all securities underwriting and dealing activities
are considered financial activities for purposes of the Proposed Rule
even if a bank holding company or other company affiliated with a
depository institution may be limited in the amount of such activity it
may conduct or may be prohibited from broadly engaging in the activity
under the ``Volcker Rule.'' \12\
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\10\ See, 12 CFR 225.170 et seq.
\11\ 12 U.S.C. 1843(c)(6).
\12\ 12 U.S.C. 1851 et seq.
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Rules of Construction
To further facilitate determinations under the Proposed Rule and to
reduce burden, the Proposed Rule includes two rules of construction
governing the application of the two-year test to revenues derived from
a company's minority, non-controlling equity investments in
unconsolidated entities.
Under the first rule of construction, the revenues derived from a
company's equity investment in another company (investee company), the
financial statements of which are not consolidated with those of the
company under applicable accounting standards, would be considered as
revenues derived from a financial activity if the investee company
itself is predominantly engaged in financial activities under the
revenue test set forth in the Proposed Rule (non-consolidated
investment rule). Treating all of the revenues derived from such an
investment as derived from a financial activity based on the aggregate
mix of the investee company's revenues is consistent with the statutory
definition of financial company generally, which treats an entire
company as a financial company if 85 percent of its consolidated
revenues are derived from financial activities. This approach also
avoids requiring a company to determine the precise percentage of an
investee company's activities that are financial in order to determine
the portion of the company's revenues derived from the investment that
should be treated as derived from such activities. Lastly, the non-
consolidated investment rule is similar to the approach proposed by the
Board of Governors for determining whether a nonbank company is
predominantly engaged in financial activities under Title I.\13\
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\13\ See, 76 FR 7731 (February 11, 2011).
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The second rule of construction would permit (but not require) a
company to treat revenues it derives from certain de minimis equity
investments in investee companies as not derived from financial
activities without having to separately determine whether the investee
company is itself predominantly engaged in financial activities (``de
minimis rule''). The de minimis rule would be subject to several
conditions designed to limit the potential for these de minimis
investments to substantially alter the character of the activities of
the company.
Specifically, the de minimis rule provides that a company may treat
revenues derived from an equity investment in an investee company as
revenues not derived from financial activities (regardless of the type
of activities conducted by the investee company), if: (i) The company
owns less than five percent of any class of outstanding voting shares,
and less than 25 percent of the total equity, of the investee company;
(ii) the financial statements of the investee company are not
consolidated with those of the company under applicable accounting
standards; (iii) the company's investment in the investee company is
not held in connection with the conduct of any financial activity (such
as, for example, investment advisory activities or merchant banking
investment activities) by the company or any of its subsidiaries; (iv)
the investee company is not a bank, bank holding company, broker-
dealer, insurance company, or other regulated financial institution;
and (v) the aggregate amount of revenues treated as nonfinancial under
the rule of construction in any year does not exceed five percent of
the company's total consolidated financial revenues.
The FDIC consulted with the Board of Governors during the
development of this section of the Proposed Rule. The Board of
Governors has issued a notice of proposed rulemaking entitled
``Definitions of `Predominantly Engaged in Financial Activities' and
`Significant' Nonbank Financial Company and Bank Holding Company''
(``Board of Governors' NPR'').\14\ The Board of Governors' NPR
addresses the definition of ``predominantly engaged in financial
activities'' for purposes of determining if an entity is a nonbank
financial company under Title I of the Dodd-Frank Act.
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\14\ 76 FR 7731 (February 11, 2011).
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Recoupment of Compensation
Section 380.7 of the Proposed Rule establishes criteria for the
circumstances under which the FDIC as receiver will seek to recoup
compensation from persons who are substantially responsible for the
failed condition of a covered financial company.
Background
When appointed receiver for a failed covered financial company, the
FDIC is required to exercise its Title II authority to liquidate
failing financial companies in a manner that furthers the statutory
purposes of Title II as set forth in section 204(a) of the Act:
mitigation of
[[Page 16329]]
significant risk to the financial stability of the United States and
minimization of moral hazard. In fulfilling these goals, the FDIC must
``* * * take all steps necessary and appropriate to assure that all
parties, including management, directors, and third parties, having
responsibility for the condition of the financial company bear losses
consistent with their responsibility, including actions for damages,
restitution, and recoupment of compensation and other gains not
compatible with such responsibility.'' \15\ In order to carry out this
mandate, the FDIC as receiver may recover from senior executives and
directors who were substantially responsible for the failed condition
of a covered financial company any compensation that they received
during the two-year period preceding the date on which the FDIC was
appointed as receiver of the covered financial company, or during an
unlimited time period in the case of fraud. Section 210(s)(3) of the
Act directs the FDIC to promulgate regulations to implement the
compensation recoupment requirements of section 210(s) of the Act. The
purpose of this section is to provide guidance on how the FDIC will
implement its authority by identifying the circumstances in which the
FDIC as receiver will seek to recoup compensation from persons who are
substantially responsible for the failed condition of a covered
financial company.
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\15\ Section 204(a)(3) of the Act.
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Substantially Responsible
In assessing whether a senior executive or director is
substantially responsible for the failed condition of the covered
financial company, the FDIC as receiver will investigate: (1) How the
senior executive or director performed his or her duties and
responsibilities, and (2) the results of that performance. Senior
executives and directors who perform their responsibilities with the
requisite degree of skill and care will not be required to forfeit
their compensation. The health of the financial industry depends on
these persons remaining committed to the industry. If a senior
executive or director fails to meet the requisite degree of skill and
care, however, the FDIC as receiver will determine what results that
failure had on the covered financial company, by considering any loss
to the covered financial company caused individually or collectively by
the senior executive or director. Furthermore, to be held responsible,
the loss to the financial condition must have materially contributed to
the failure of the covered financial company. The FDIC is considering
the use of additional qualitative and quantitative benchmarks to
establish that the loss materially contributed to the failure of the
covered financial company. Financial indicators under consideration as
possible benchmarks are assets, net worth and capital, and the
percentage or magnitude of loss associated with these benchmarks that
would establish a material loss and trigger substantial responsibility.
The FDIC solicits comments on these and other potential benchmarks that
may be used to effectively evaluate loss.
Presumptions
In the event that the FDIC is appointed as receiver for a covered
financial company, certain persons will be presumed substantially
responsible for the financial condition of the company. Substantial
responsibility shall be presumed when the senior executive or director
is the chairman of the board of directors, chief executive officer,
president, chief financial officer, or acts in any other similar role
regardless of his or her title if in this role he or she had
responsibility for the strategic, policymaking, or company-wide
operational decisions of the covered financial company. The FDIC as
receiver also will presume the substantial responsibility of a senior
executive or director who has been adjudged by a court or tribunal to
have breached his or her duty of loyalty to the covered financial
company. Finally, in order to ensure consistency this presumption also
extends to a senior executive or director who has been removed from his
or her position with a covered financial company under section 206(4)
or section 206(5) of the Act.
An individual presumed to be substantially responsible for the
failed condition of a covered financial company based on his or her
position or role in the covered financial company may rebut the
presumption of substantial responsibility for the condition of the
covered financial company by proving that he or she performed his or
her duties with the requisite degree of skill and care required by the
position. This determination will be made on a case-by-case basis. A
senior executive or director presumed to be substantially responsible
for the failed condition of a covered financial company based on his or
her removal from his or her position under sections 206(4) or 206(5) of
the Act, or based on an adjudication that he or she breached his or her
duty of loyalty to the covered financial company may rebut the
presumption by proving that he or she did not did not cause, either
individually or in conjunction with others, a loss to the covered
financial company that materially contributed to the failure of the
covered financial company.
Exceptions to Presumptions
Senior executives or directors who join a covered financial company
specifically for the purpose of improving its financial condition are
exempted from this presumption if they were employed by the covered
financial company for this purpose within the two years preceding the
appointment of the FDIC as receiver. However, although they are not
subject to the presumption, the FDIC as receiver may still seek
recoupment of their compensation if their actions nevertheless
establish that they are substantially responsible for the failed
condition of the covered financial company.
The use of a rebuttable presumption of substantial responsibility
under certain circumstances is consistent with its use in other
regulatory and common law areas. The Office of the Comptroller of the
Currency uses rebuttable presumptions to determine when an individual's
acquisition of bank stock will result in the acquisition by that
individual of the power to direct the bank's management or policies. 12
CFR 5.50. The Social Security Administration uses presumptions to
establish total disability. 20 CFR part 410. At common law, the
existence of certain facts, such as exclusive control in negligence
cases or disparate impact in discrimination cases, is viewed as
sufficient to require some form of rebuttal evidence.
The authority of the FDIC as receiver to recoup compensation from
senior executives and directors is separate from the authority granted
to the FDIC as receiver in other sections of Title II to pursue
recovery from senior executives and directors for losses suffered by a
failed covered financial company. The FDIC as receiver is not precluded
from pursuing recovery based on other grants of authority in Title II
of the Act because it recoups compensation from senior executives and
directors under Section 210(s).
Section 380.1 of the Proposed Rule amends the existing Sec. 380.1
promulgated pursuant to the January 25, 2011 Interim Final Rule to add
definitions of the terms ``compensation'' and ``director,'' and to
apply the definition of ``senior executive'' included in Sec. 380.3 of
the Interim Final
[[Page 16330]]
Rule wherever the phrase ``senior executive'' is used in the Proposed
Rule and throughout part 380. The definition of the term
``compensation'' incorporates the definition mandated in section
210(s)(3) of the Act. The Proposed Rule's definition for the term
``director'' includes those persons who are in a position to affect the
activities of the covered financial company and who have a material
effect on the financial condition of the covered financial company.
Treatment of Fraudulent and Preferential Transfers
Section 380.9 of the Proposed Rule addresses the powers granted to
the FDIC as receiver in section 210(a)(11) of the Act to avoid certain
fraudulent and preferential transfers and seeks to harmonize the
application of these powers with the analogous provisions of the
Bankruptcy Code so that the transferees of assets will have the same
treatment in a liquidation under the Dodd-Frank Act as they would in a
bankruptcy proceeding.
There are two areas in which there is a potential for inconsistent
treatment of transferees under a Title II orderly liquidation as
compared to a Chapter 7 bankruptcy liquidation. The first issue relates
to the standard used in determining whether the FDIC as receiver can
avoid a transfer as fraudulent or preferential under Title II. For
purposes of this determination, section 210(a)(11)(H)(i)(II) of the Act
provides that a transfer is made when the transfer is so perfected that
a bona fide purchaser cannot acquire a superior interest, or if the
transfer has not been so perfected before the FDIC is appointed as
receiver, immediately before the date of appointment. This section
could be read to apply the bona fide purchaser construct to all
fraudulent transfers and to all preferential transfers pursuant to
section 210(a)(11)(B) of the Dodd-Frank Act. By contrast, the
Bankruptcy Code uses the bona fide purchaser construct only for
fraudulent transfers and for preferential transfers of real property
other than fixtures. Section 547(e)(1)(B) of the Bankruptcy Code
provides that in the case of preferential transfers of personal
property and fixtures, a transfer occurs at the time the transferee's
interest in the transferred property is so perfected that a creditor on
a simple contract cannot acquire a judicial lien \16\ that is superior
to the interest of the transferee. This section of the Proposed Rule
makes clear that under section 210(a)(11)(H) of the Dodd-Frank Act, the
FDIC could not, in a proceeding under Title II, avoid as preferential
the grant of a security interest perfected by the filing of a financing
statement in accordance with the provisions of the Uniform Commercial
Code or other non-bankruptcy law where a security interest so perfected
could not be avoided in a case under the Bankruptcy Code.
---------------------------------------------------------------------------
\16\ The term ``judicial lien'' is defined in section 101(36) of
the Bankruptcy Code as a lien obtained by judgment, levy,
sequestration or other legal or equitable process or proceeding. A
similar, but abbreviated, formulation is found in section
547(e)(1)(B) of the Bankruptcy Code.
---------------------------------------------------------------------------
The second issue relates to the 30-day grace period, provided in
section 547(e)(2) of the Bankruptcy Code, in which a security interest
in transferred property may be perfected after such transfer has taken
effect between the parties. Section 547(e)(2) of the Bankruptcy Code
generally states that a transfer of property is made (i) when the
transfer takes effect between the transferor and the transferee, if the
transfer is perfected at or within 30 days after that time (or within
30 days of the transferor receiving possession of the property, in the
case of certain purchase money security interests), (ii) when the
transfer is perfected, if the transfer is perfected after the 30-day
period, or (iii) if such transfer is not perfected before the later of
the commencement of the bankruptcy case or 30 days after the transfer
takes effect, immediately before the date when the bankruptcy petition
is filed. Section 210(a)(11)(H) of the Dodd-Frank Act does not contain
any express grace period. Consistent with the direction provided in
section 209 of the Dodd-Frank Act to harmonize the regulations with
otherwise applicable insolvency law to the extent possible, and to
facilitate implementation of the avoidable transfer provisions of
sections 210(a)(11)(A) and (B) of the Dodd-Frank Act, Sec. 380.9 of
the Proposed Rule includes provisions that would result in the
following:\17\
---------------------------------------------------------------------------
\17\ These provisions conform with the letter dated December 29,
2010 from the FDIC's Acting General Counsel to the Securities
Industry and Financial Markets Association (``SIFMA'') and the
American Securitization Forum available on SIFMA's Web site at
http://www.sifma.org/issues/item.aspx?id=22820.
---------------------------------------------------------------------------
The avoidance provisions in section 210(a)(11) would apply
the bona fide purchaser construct only in the case of fraudulent
transfers under subparagraph (A) thereof and preferential transfers of
real property (other than fixtures) under subparagraph (B) thereof;
The avoidance provisions in section 210(a)(11)(B) would
apply the ``hypothetical lien creditor'' construct as applied under
section 547(e)(1)(B) of the Bankruptcy Code to any preferential
transfers of personal property and fixtures; and
the avoidance provisions in section 210(a)(11)(B) would
apply the 30-day grace period as provided in section 547(e)(2) of the
Bankruptcy Code, including any exceptions or qualifications contained
therein.
Subpart A--Priorities
The Proposed Rule adds a Subpart A consisting of Sec. Sec. 380.20-
26 relating to the priorities of expenses and unsecured claims in the
receivership of a covered financial company. Subpart A integrates all
of the various provisions of the Dodd-Frank Act that determine the
nature and priority of payments. First, the Subpart integrates the
various statutory references to administrative expenses throughout the
Act including identification of claims for amounts due to the United
States, to ensure consistent application of those provisions. Second,
the Subpart confirms the statutory preference for claims arising out of
the loss of setoff rights over other general unsecured creditors if the
loss of the setoff is due to the receiver's sale or transfer of an
asset. Third, the Proposed Rule clarifies the payment of obligations of
bridge financial companies and the rights of receivership creditors to
remaining value. Finally, the Proposed Rule provides for the payment of
post-insolvency interest on claims and for the determination of the
index by which the limit applicable to certain claims for wages and
benefits will be increased.
Subpart A of the Proposed Rule organizes and clarifies provisions
throughout Title II of the Dodd-Frank Act dealing with the relative
priorities of various creditors with claims against a failed financial
company. These various provisions are based on the fundamental
principle that any orderly liquidation should fairly treat similarly
situated creditors and should ensure that the ultimate risk of loss for
a failure of a systemically important financial company rests with the
stockholders of the failed company. Although tools were put into place
to ensure that temporary financing would be available to facilitate an
orderly liquidation of the company to preserve its going concern value
and to avoid cost-increasing disruptions of operations, the Dodd-Frank
Act's resolution regime makes clear that there will be no more
bailouts.
The responses to the request for broad comments in the October 19,
2010 Notice of Proposed Rulemaking raised a number of issues regarding
the priorities of expenses and unsecured claims in a covered financial
company receivership. Among the suggestions for future
[[Page 16331]]
rulemakings, the topic of priorities of claims appeared often. One
specific topic raised by several commenters included section
210(a)(12)(F) of the Dodd-Frank Act regarding the priority for
creditors who are deprived of setoff rights. Another was the treatment
of post-solvency interest, particularly with respect to oversecured
creditors. Other comments requested that the FDIC clarify the
relationship between a bridge financial company and creditors of the
covered financial company. Subpart A of the Proposed Rule addresses
these and other issues with respect to priorities. Other suggestions
will be taken up in future rulemakings, and further comments are
solicited in response to this Notice of Proposed Rulemaking.
Definitions
Section 380.20 of the Proposed Rule contains a definition of the
term ``allowed claim'' which is used throughout Subpart A to mean a
claim in the amount allowed by the FDIC as receiver in accordance with
the procedures established in Subpart B of the Proposed Rule, or as
determined by the final order of a court of competent jurisdiction.
Definitions that apply throughout part 380 are found in Sec. 380.1,
including the definitions of ``senior executive'' (previously included
in Sec. 380.3), ``compensation,'' and ``director.''
Priority of Unsecured Claims
Section 380.21 lists each of the eleven priority classes of claims
established under the Dodd-Frank Act in the order of its relative
priority. In addition to the specified priorities listed in section
210(b), the Proposed Rule integrates additional levels of priority
established under section 210(c)(13)(d) (certain post-receivership
debt); section 210(a)(13) (claims for loss of setoff rights); and
section 210(a)(7)(D) (post insolvency interest). In order, the eleven
classes of priority of claims are as follows:
(1) Claims with respect to post-receivership debt extended to the
covered financial company where such credit is not otherwise available,
(2) Other administrative costs and expenses,
(3) Amounts owed to the United States,
(4) Wages, salaries and commissions earned by an individual within
6 months prior to the appointment of the receiver up to the amount of
$11,725 (as adjusted for inflation),
(5) Contributions to employee benefit plans due with respect to
such employees up to the amount of $11,725 (as adjusted for inflation)
times the number of employees,
(6) Claims by creditors who have lost setoff rights by action of
the receiver,
(7) Other general unsecured creditor claims,
(8) Subordinated debt obligations,
(9) Wages, salaries and commissions owed to senior executives and
directors,
(10) Post-insolvency interest, which shall be distributed in
accordance with the priority of the underlying claims, and (1)
Distributions on account of equity to shareholders and other equity
participants in the covered financial company.
Paragraph (b) of Sec. 380.21 conforms the method of adjusting
certain payments for inflation to the similar provisions of the
Bankruptcy Code. Paragraph (c) provides that each class will be paid in
full before payment of the next priority, and that if funds are
insufficient to pay any class of creditors, the funds will be allocated
among creditors in that class, pro rata.
This Proposed Rule establishes the general rule for the priority of
claims of different classes of creditors. The Dodd-Frank Act provides
for limited exceptions to this general rule of similar treatment for
similarly-situated creditors, and any exception to the priorities
established by this section must meet the statutory grounds for such an
exception and the related regulations, including Sec. 380.2 of this
part.
Administrative Expenses
There are several references throughout the Act to the
administrative expenses of the receiver. In section 201(a)(1) of the
Dodd-Frank Act, the term is defined as including both ``the actual,
necessary costs and expenses'' incurred by the receiver in liquidating
a covered financial company, as well as ``any obligations'' that the
FDIC as receiver determines are ``necessary and appropriate to
facilitate the smooth and orderly liquidation of the covered financial
company.'' Section 210(b)(2) of the Dodd-Frank Act provides that the
receiver may grant first priority administrative expense status to
unsecured debt obtained by the receiver in the event that credit is not
otherwise available from commercial sources. Administrative expense
priority is given to debt incurred by the FDIC as receiver in enforcing
an existing contract to extend credit to the covered financial company
under section 210(c)(13)(D). The Act also expressly confers
administrative expense status on claims for payment for services
performed under a service contract of the covered financial company
after appointment of the receiver (Sec. 210(c)(7)(B)(ii)) and for
payment of ongoing contractual rent for leases under which the covered
financial company is lessee (Sec. 210(c)(4)) in harmony with
bankruptcy practice as well as current practice under the FDI Act. In
addition, pursuant to section 211(d)(4) of the Dodd-Frank Act, the
expenses of the Inspector General of the FDIC incurred in connection
with the conduct of an investigation of the liquidation of any covered
financial company shall be funded as an administrative expense of the
receiver of that covered financial company. Section 210(a)(15) of the
Dodd-Frank Act expressly provides that damages for breach of a contract
``executed or approved'' by the FDIC as receiver for a covered
financial company shall be paid as an administrative expense.
Subparagraph 380.22(a)(3) clarifies that the phrase ``executed or
approved'' includes only (i) contracts that are affirmatively entered
into by the FDIC as receiver in writing after the date of its
appointment, or (ii) contracts that pre-date the appointment of the
FDIC as receiver that have been expressly approved in writing by the
receiver. Damages for breach of a pre-receivership contract cannot
attain administrative expense priority merely by the inaction of the
receiver, such as the absence of a formal repudiation. Similarly, a
contract inherited by the FDIC as receiver will not be deemed to have
been approved based upon an alleged course of conduct by the receiver.
Affirmative action by the receiver by formally approving the contract
in writing is the prerequisite for administrative expenses treatment of
damages for breach of a contract entered into by the covered financial
company prior to appointment of the receiver.
In addition to consolidating all of these statutory references to
the administrative expenses of the receiver into a single rule,
proposed Sec. 380.22(a) makes clear that expenses of the receiver that
are necessary and appropriate to facilitate a smooth and orderly
liquidation may be incurred by the FDIC pre-failure as well as after
the appointment of the FDIC as receiver, and that all such expenses are
administrative expenses of the receiver. The inclusion of both pre-
failure and post-failure administrative expenses under the same
standard is consistent with the treatment of administrative expenses
under the FDI Act. See 12 CFR 360.4. In a bankruptcy case, the pre-
petition expenses of preparing a petition must be paid prior to filing
or await confirmation. All fees, compensation and expenses of
liquidation and
[[Page 16332]]
administration shall be fixed by the FDIC. Such fees, compensation and
expenses include amounts that the Corporation charges the receivership
for services rendered by the FDIC.
Amounts Owed to the United States
Section 210(b)(1)(B) of the Dodd-Frank Act establishes a priority
class for ``amounts owed to the United States'' immediately following
the priority class for ``administrative expenses of the receiver.''
Section 380.23 of the Proposed Rule establishes a definition for the
phrase ``amounts owed to the United States'' and makes clear that it
includes amounts advanced by the Department of Treasury or by any other
department, agency or instrumentality of the United States, whether
such amounts are advanced before or after the appointment of the
receiver. For the sake of clarity, in addition to expressly listing
advances by the FDIC for funding the orderly liquidation of the covered
financial company pursuant to section 204(d)(4) as amounts owed to the
United States, the Proposed Rule also expressly includes other sums
advanced by departments, agencies and instrumentalities of the United
States such as amounts owed to the FDIC for payments made pursuant to
guarantees including payments to satisfy any guarantee of debt under
the FDIC's Temporary Liquidity Guarantee Program, 12 CFR part 370, as
well as unsecured accrued and unpaid taxes owed to the United States.
Unsecured claims for net realized losses by a Federal reserve bank also
are included, consistent with the mandate under section 1101 of the Act
that requires such advances to have the same priority as amounts due to
the United States Department of Treasury. The Dodd-Frank Act does not
similarly specifically include government-sponsored entities such as
FNMA, FHMLC or Federal Home Loan Banks, and the regulation therefore
does not provide that obligations to those entities would be among the
class of claims included among amounts owed to the United States under
subsection 380.21(a)(3).
Although section 204(d)(4) of the Dodd-Frank Act provides that the
FDIC has the power to take liens upon assets of the covered financial
company to secure advances and guarantees made under that section, and
provides that such advances will be repaid as administrative expenses
``as appropriate,'' the Proposed Rule makes clear that the FDIC will
treat all such amounts as amounts owed to the United States payable at
the level of priority immediately following administrative expenses.
This priority will apply regardless of whether or not such advance is
treated as debt or equity on the books of the covered financial
company. It will also apply whether or not such advance is secured by a
lien under section 204(d)(4) in recognition of the FDIC's authority to
impose assessments under section 210(o), which effectively guarantees
repayment of such advances whether or not they are secured. Similarly,
although the statute permits a distinction between advances for the
purpose of funding administrative expenses (which are repayable at the
administrative expense priority level) and other advances that are
repaid as amounts owed to the United States, there will be little
practical difference in the treatment of obligations for amounts
advanced under section 204(d) of the Act because the power to impose
additional assessments under section 210(o) assures that these amounts
always will be repaid, thereby rendering unnecessary the need to track
the actual use of such advances. As a practical matter, the only
potential difference in the payment of a claim at the administrative
expense priority under Sec. 380.21(a)(2) and a claim at the priority
class level for amounts owed to the United States under Sec.
380.21(a)(3) would be the timing of the payment, and that potential
differential would be addressed by the payment of interest at the post-
insolvency rate as described in Sec. 380.25.
Section 380.23(b) acknowledges that the United States may consent
to subordination of its right to repayment of any specified debt or
obligation provided that all unsecured claims of the United States
shall, at a minimum, have a higher priority than equity or other
liabilities of the covered financial company that count as regulatory
capital. This is consistent with the mandatory requirement of section
206 of the Dodd-Frank Act that the shareholders of a covered financial
company shall not receive payment until after all other claims are
fully met.
Setoff
Section 210(a)(12) of the Dodd-Frank Act permits a creditor to
offset certain qualified mutual debts between the covered financial
company and the creditor. To allow the FDIC as receiver the flexibility
to maximize the return from the disposition of assets of the covered
financial company and to transfer assets to a bridge financial company
so as to preserve the going concern value of the company, the Dodd-
Frank Act specifically empowers the receiver to transfer assets of a
covered financial company ``free and clear of the setoff rights of any
third party.'' Section 380.24 of the Proposed Rule addresses the claims
of creditors who have lost a right of setoff due to the exercise of the
receiver's right to sell or transfer assets of the covered financial
company free and clear. Normally, a transfer of the assets without the
claim will prevent setoff because the transfer destroys the mutuality
of obligations that is the prerequisite of any ability to offset a
claim directly against an obligation. The Dodd-Frank Act includes
section 210(a)(12)(F) to provide a claimant with a preferred recovery
as a general creditor and, thereby, achieve comparable protection. In
the Proposed Rule, Sec. 380.24 ensures that the claim of a creditor
based upon the loss of an otherwise valid right of setoff due to a
transfer of assets of the receiver will be paid at the level of
priority immediately prior to all other general unsecured creditors.
Under the Dodd-Frank Act, the receiver is expressly authorized to
sell assets free and clear of setoff claims, and the resulting claim
for loss of those rights is expressly given a priority above other
general unsecured creditors--but below administrative claims, amounts
owed to the United States and certain employee-related claims. This
preferential treatment should normally provide value to setoff
claimants equivalent to the value of setoff under the Bankruptcy Code.
While in bankruptcy setoff claims are functionally treated similarly to
a security interest, the Bankruptcy Code treatment would severely
impair the FDIC's ability to transfer assets of the covered financial
company for value. The provisions of the Dodd-Frank Act and the
implementing provisions in the Proposed Rule do provide adequate
protection for the claimant in the context of the necessity for prompt
transfer of the underlying asset. The Proposed Rule establishes that
the FDIC as receiver will pay claimants for their loss of setoff rights
in accordance with the express provisions of the Dodd-Frank Act.
Post-Insolvency Interest
Section 380.25 of the Proposed Rule establishes a post-insolvency
interest rate, as required by section 210(a)(7)(D) of the Dodd-Frank
Act. That rate is based on the coupon equivalent yield of the average
discount rate set on the three-month U.S. Treasury Bill. Post-
insolvency interest is computed quarterly and is not compounded. This
is the rate that has been used by the FDIC in connection with claims
under the FDI Act, and the same rate was chosen for the Dodd-Frank Act
for ease of administration. In contrast, the
[[Page 16333]]
Bankruptcy Code provides in section 726(a)(5) for post-petition
interest at the ``legal rate;'' however, in interpreting this
provision, bankruptcy courts have not established a uniform post-
petition interest rate. For the purpose of uniform treatment, the
Proposed Rule computes post-insolvency interest in the same manner as
provided for under the FDI Act pursuant to 12 CFR 360.7.
The Proposed Rule makes it clear that the post-insolvency interest
is applied to the entire claim amount, which may include pre-
receivership interest. In addition, if the claim is for damages arising
out of repudiation of an obligation, the claim amount may include
interest through the date of repudiation as required under section
210(c)(3)(D) of the Act. The Dodd-Frank Act does not contain a
provision similar to section 506(b) of the Bankruptcy Code allowing
interest at the contract rate and certain fees and expenses to be paid
to oversecured creditors to the extent of the value of their
collateral. Comment is sought on whether this is an area in which the
FDIC should seek to harmonize orderly resolution practice with the
Bankruptcy Code.
Transfers to Bridge Financial Companies
Section 380.26 of the Proposed Rule addresses and clarifies the
treatment of assets and liabilities that are transferred to a bridge
financial company by the FDIC as receiver by providing that any
obligation that is expressly purchased or assumed by the bridge
financial company will be paid by the bridge financial company in
accordance with the terms of such obligation. The Proposed Rule
similarly addresses the treatment of contracts or agreements expressly
entered into by the bridge financial company. As an operating company,
a bridge financial company will make payments on valid and enforceable
obligations as they become due and not pursuant to a claims process. In
short, valid and enforceable obligations purchased or assumed by the
express agreement of the bridge financial company, as well as valid and
enforceable obligations under contracts or agreements expressly agreed
to by the bridge financial company will be paid in full as part of the
normal operations of the bridge financial company.
Certain rights and obligations of the covered financial company
will be transferred and assumed by the express agreement of the bridge
financial company in the purchase and assumption agreement with the
receiver for that covered financial company. The terms and conditions
under which those rights and obligations are transferred and assumed
will, of course, be governed by the terms of the purchase and
assumption agreement. Thus, if an obligation is conditionally
transferred to a bridge financial company subject to due diligence,
put-back rights or other contingencies, the assumption of the
obligation would be subject to these contingencies. Section 380.26
should not be read to eliminate express contingencies to the assumption
of obligations nor any right to terminate an obligation or to put it
back to the receiver of the covered financial company.
Several comments requested that a rule be promulgated to clarify
the relationship between the bridge financial company and the creditors
of the covered financial company. A bridge financial company will be a
solvent company when it is formed in accordance with the express
requirements of section 210(h)(5)(F) of the Act. The Dodd-Frank Act
provides, however, that a bridge financial company has a finite
existence pursuant to section 210(h)(12), and section 210(n)
contemplates several means of disposing of the assets and liabilities
of a bridge financial company and terminating its existence. A bridge
financial company can be sold via merger, consolidation or a sale of
stock, whereupon the bridge financial company's federal charter is
terminated and any remaining assets liquidated. A bridge financial
company also can be liquidated by a sale of its assets and assumption
of its liabilities. If a bridge financial company is not liquidated,
dissolved and terminated within two years of the date it is chartered
(subject to not more than three one-year extensions), the FDIC shall
act as receiver for the bridge financial company and shall wind up the
affairs of the bridge financial company in conformity with the
liquidation of covered financial companies under Title II of the Act,
including the priorities and claims provisions. The Proposed Rule makes
clear that the proceeds that remain following sale, liquidation and
dissolution of the bridge financial company will be distributed to the
FDIC as receiver for the covered financial company and will be made
available to the creditors of the covered financial company after all
administrative expenses and other creditor claims of the receiver for
the bridge financial company have been satisfied.
Subpart B--Receivership Administrative Claims Process
The Proposed Rule also includes Subpart B, consisting of Sec. Sec.
380.30-39 and Sec. Sec. 380.50-55, to clarify how creditors can file
claims against the receivership estate, how the FDIC as receiver will
determine those claims, and how creditors can pursue their claims in
Federal court.
Section 210(a)(2)-(5) of the Dodd-Frank Act provides for the
resolution of claims against a covered financial company through an
administrative process conducted by the FDIC as receiver. Generally,
this process calls for creditors to file their claims with the receiver
by a claims bar date. The receiver will determine whether to allow or
disallow a claim no later than 180 days after the claim is filed
(subject to any extension agreed to by the claimant). If the claim is
disallowed, the claimant may seek de novo judicial review of the claim
by filing a lawsuit (or continuing a pending lawsuit) within a
prescribed 60-day time period. No court has jurisdiction to hear any
claim against either the covered financial company or the receiver
unless the claimant has first obtained a determination of the claim
from the receiver.
Congress has established an exclusive, separate set of procedures
for the presentation and determination of claims against a covered
financial company or the FDIC as receiver. The statute is clear that
the claimant must exhaust the administrative claims process as a
jurisdictional prerequisite before any court can adjudicate the claim.
While harmonization with other insolvency laws may be worthwhile and
achievable in many other aspects of the orderly liquidation of a
covered financial company, the FDIC cannot promulgate rules that
materially diverge from or are inconsistent with the claims procedures
set forth in the Dodd-Frank Act. Nevertheless, the FDIC believes that
it is appropriate to look to the Bankruptcy Code to fill gaps in the
Act, for example, where the Title II claims procedures lack specific
directives regarding how the receiver should handle property that
serves as collateral for a secured claim.
The administrative claims process of Title II is closely modeled
after the claims process set forth in the FDI Act for receiverships of
insured depository institutions. Like the FDI Act claims process, the
Title II administrative process for claims against a covered financial
company is designed to maximize efficiency while reducing the delay and
additional costs that could be incurred in a different insolvency
regime. Creditors' rights are protected by the availability of judicial
review if the claim is disallowed, in whole or in part, by the
receiver. This is a de novo determination of the claim by the court
[[Page 16334]]
on its merits and not a review of whether the receiver abused its
discretion in disallowing the claim.
Because many parties may be unfamiliar with the resolution process
for a failed insured depository institution generally and the
administrative claims process in particular, the FDIC has undertaken in
the Proposed Rule to explain certain important aspects of the claims
process for a covered financial company receivership. While the
Proposed Rule reflects all the statutory procedures, it also organizes
those procedures in a step-by-step manner in order to promote greater
understanding and clarity. In some instances, the Proposed Rule
interprets the statutory procedures to address issues that are not
addressed in the statute. For example, the statute does not provide
notice procedures for claimants who are discovered after the claims bar
date; the Proposed Rule fills this gap by providing for a 90-day claims
filing period for such claimants. In other instances, the Proposed Rule
supplements the statutory procedures in order to facilitate programs
that have been instituted by the FDIC for greater efficiency, such as
the electronic filing of claims.
The following sections appear under Subpart B of the Proposed Rule:
Receivership Administrative Claims Process
Section 380.30 of the Proposed Rule reflects the express
authorization under the Dodd-Frank Act that the FDIC as receiver shall
determine all claims in accordance with the statutory procedures and
with the regulations promulgated by the FDIC. This section also
clarifies that the administrative claims process will not apply to
claims transferred to a bridge financial company or to third parties.
Definitions
Section 380.31 of the Proposed Rule defines the term ``claim'' to
have the same meaning as in section 201(a)(4) of the Dodd-Frank Act,
specifically, ``any right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured.'' (This definition is generally consistent with the
definition of the term in the Bankruptcy Code.) The Proposed Rule uses
the definition of ``claim'' as set forth in section 201(a)(4) of the
Act, but adds language to the definition to specify that a claim is a
right to payment from either the covered financial company or the FDIC
as receiver. The clarification that claims against the receiver are
subject to the administrative claims process is necessary because
section 210(a)(9)(D) divests a court of jurisdiction over claims
against the receiver until the administrative claims process has been
exhausted. If claims against the receiver were not first determined
pursuant to the administrative claims process, no court would ever have
jurisdiction over these claims. The terms ``Corporation,''
``Corporation as receiver,'' and ``receiver'' are used interchangeably
in the statute, and the Proposed Rule clarifies that such terms refer
to the FDIC in its capacity as receiver of a covered financial company.
Claims Bar Date
Section 380.32 of the Proposed Rule reflects the statutory
requirement that the FDIC as receiver establish a ``claims bar date''
by which creditors of the covered financial company are to file their
claims with the receiver. The claims bar date must be identified in
both the published notices and the mailed notices required by the
statutory procedures. The Proposed Rule clarifies that the claims bar
date is calculated from the date of the first published notice to
creditors, not from the date of appointment of the receiver.
Notice Requirements
Section 380.33 of the Proposed Rule reiterates the statutory
procedures for notice to creditors of the covered financial company. As
required by the statute, upon its appointment as receiver of a covered
financial company, the FDIC as receiver will promptly publish a first
notice; subsequently, the receiver will publish a second and third
notice one month and two months, respectively, after the first notice
is published. The notices must inform creditors to present their claims
to the receiver, together with proof, by no later than the claims bar
date. The Proposed Rule provides that the notices shall be published in
one or more newspapers of general circulation in the market where the
covered financial company had its principal place of business. In
recognition of the public's growing reliance on communication using the
Internet as well as the prevalence of online commerce, the Proposed
Rule provides that in addition to the published and mailed notices, the
FDIC may post the notice on its public Web site.
In addition to the publication notice required by paragraph (a) of
this section, the receiver must mail a notice that is similar to the
publication notice to each creditor appearing on the books and records
of the covered financial company. The mailed notice will be sent at the
same time as the first publication notice to the last address of the
creditor appearing on the books or in any claim filed by a claimant.
The Proposed Rule provides that after sending the initial mailed notice
required under paragraph (b), the FDIC may communicate by electronic
media (such as e-mail) with any claimant who agrees to such means of
communication.
Paragraph (d) of Sec. 380.33 clarifies the treatment of creditors
that are discovered after the initial publication and mailing has taken
place. The FDIC as receiver shall mail a notice similar to the
publication notice to any claimant not appearing on the books and
records of the covered financial company no later than 30 days after
the date that the name and address of such claimant is discovered. If
the name and address of the claimant is discovered prior to the claims
bar date, such claimant will be required to file the claim by the
claims bar date. There may be instances when notice to the discovered
claimant is sent immediately before the claims bar date, possibly
giving the claimant insufficient time to prepare and file a claim
before the claims bar date. In such a case, the claimant may invoke the
statutory exception for late-filed claims set forth in section
210(a)(3)(C)(ii) and Sec. 380.35(b)(3) of the Proposed Rule in order
to overcome the claims bar date filing requirement.
When a claimant is discovered by the receiver after the claims bar
date, the receiver must still provide mailed notice that is similar in
content to the publication notice required by section 210(a)(2)(C).
Such a discovered claimant cannot comply with a claims bar date that
has already passed. Therefore, the Proposed Rule adopts a procedure for
providing another time frame for filing a claim which parallels the
statutory time frame mandated by section 210(a)(2)(B); i.e., no earlier
than 90 days from the first publication notice. Thus, although a
claimant discovered after the claims bar date will be given 90 days to
file its claim, the failure to file a claim by the end of that 90 day
period will result in disallowance of the claim.
Procedures for Filing Claims
Section 380.34 of the Proposed Rule provides guidance to potential
claimants regarding certain aspects of filing a claim. The FDIC as
receiver has determined to provide creditors with instructions as to
how to file a claim in several different formats. These will include
providing FDIC contact information in the publication notice, providing
a proof of claim form and filing instructions with the mailed
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notice, and posting a link to the FDIC's on-line non-deposit claims
processing Web site. A claim will be deemed filed with the receiver as
of the date of postmark if the claim is mailed or as of the date of
successful transmission if the claim is submitted by facsimile or
electronically.
This section also confirms existing law that each individual
claimant must submit its own claim and that no single party may assert
a claim on behalf of a class of litigants. On the other hand, a trustee
named or appointed in connection with a structured financial
transaction or securitization is permitted to file a claim on behalf of
the investors as a group because in such a case the trustee legally
owns the claim.
The Proposed Rule reiterates the statutory provision that the
filing of a claim constitutes the commencement of an action for
purposes of any applicable statute of limitations and does not
prejudice a claimant's right to continue any legal action filed prior
to the date of the receiver's appointment. The Proposed Rule clarifies,
however, that the claimant cannot continue its legal action until after
the receiver determines the claim.
Determination of Claims
Section 380.35 of the Proposed Rule reflects the receiver's
statutory authority to allow and disallow claims. The FDIC as receiver
may disallow all or any portion of a claim, including a claim based on
security, preference, setoff or priority, which is not proved to the
receiver's satisfaction. Pursuant to the statutory directive, the
receiver must disallow any claim that is filed after the claims bar
date, subject to the statutory exception for late-filed claims. Under
this exception, a late-filed claim will not be disallowed if (i) the
claimant did not have notice of the appointment of the receiver in time
to file by the claims bar date, and (ii) the claim is filed in time to
permit payment by the receiver.
The Proposed Rule establishes that claims that do not accrue until
after the claims bar date may not be disallowed by the receiver as
untimely filed. Claims of this type may include claims based on the
post-claims bar date repudiation of a contract, or acts or omissions of
the receiver. In this regard, the Proposed Rule adopts the FDIC's
interpretation of the application of the late-filed claim exception of
the FDI Act to these types of claims. See Heno v. Federal Deposit
Insurance Corporation, 20 F.3d 1204 (1st Cir. 1994). The Proposed Rule
confirms that such claims will be deemed to satisfy the statutory late-
filed claim exception. In addition, the Proposed Rule provides a
definition of the phrase ``filed in time to permit payment'' to refer
to a claim that is filed at any time before the FDIC as receiver makes
a final distribution from the receivership of the covered financial
company.
Decision Period
Section 380.36 of the Proposed Rule reflects that under the statute
the receiver must notify a claimant of its decision to allow or
disallow a claim prior to the 180th day after the claim is filed. The
Proposed Rule also provides that the claimant and the receiver may
extend the claims determination period by mutual agreement in writing.
In accordance with the statute, the receiver must notify the claimant
regarding its determination of the claim prior to the end of the
extended claims determination period.
Notification of Determination
Section 380.37 of the Proposed Rule requires the receiver to notify
the claimant of the determination of the claim as required by the
statute. The notification may be mailed to the claimant as set forth in
section 210(a)(3)(A). The receiver may use electronic media to notify
claimants who file their claims electronically. If the receiver
disallows the claim, the receiver's notification shall explain each
reason for the disallowance and advise the claimant of the procedures
required to file or continue an action in court. Consistent with the
statute, the Proposed Rule provides that for purposes of triggering the
procedures for seeking a judicial determination of the claim, a claim
shall be deemed to be disallowed if the receiver does not notify the
claimant prior to the end of the 180-day determination period or any
extended claims determination period agreed to by the receiver and the
claimant.
Procedures for Seeking Judicial Review of Disallowed Claim
Section 380.38 of the Proposed Rule implements the statutory
procedures for a claimant to seek a judicial determination of its claim
after the claim has been disallowed by the FDIC as receiver. The
court's standard of judicial review would be a de novo consideration of
the merits of the claim, not a judicial review of the receiver's
determination of the claim. The statute states that a claimant may (i)
file a lawsuit on its disallowed claim in the district court where the
covered financial company's principal place of business is located, or
(ii) continue a previously pending lawsuit. The Proposed Rule clarifies
that if the claimant continues a pending action, the claimant may
continue such action in the court in which the action was pending
before the appointment of the receiver, resolving any uncertainty
whether the action should be ``continued'' in the district court where
the covered financial company's principal place of business is located.
(In the case of an action pending in state court, the receiver would
have the authority to remove the action to Federal court if it chose to
do so.)
As provided by statute, Sec. 308.38(c) of the Proposed Rule
provides that the claimant has 60 days to commence or continue an
action regarding the disallowed claim. The time period for commencing
or continuing a lawsuit would be calculated, as applicable, from the
date of the notification of disallowance, the end of the 180-day claims
determination date, or the end of the extended determination date, if
any. If a claimant fails to file suit on a claim (or continue a pre-
receivership suit) before the end of the 60-day period, the claimant
will have no further rights or remedies with respect to the claim. This
time period is not subject to a tolling agreement between the FDIC and
the claimant. The Proposed Rule reiterates the statutory provision that
exhaustion of the administrative claims process is a jurisdictional
prerequisite for any court to adjudicate a claim against a covered
financial company or the receiver.
Secured Claims
Sections 380.50-55 of the Proposed Rule address the treatment of
secured claims, which include covered bonds. The Dodd-Frank Act, like
the Bankruptcy Code and the receivership provisions of the FDI Act,
provides that a claimant holding a security interest in property is
entitled to the value of its collateral up to the amount of the claim.
Under section 210(a)(3)(D)(ii) of the Act, a claim that is secured by
any property of the covered financial company may be treated as an
unsecured claim to the extent that the claim exceeds the fair market
value of the property, effectively bifurcating the claim into a secured
component (``the secured claim'') and an unsecured component. The
unsecured component is treated like an unsecured claim and paid along
with other unsecured claims. The Dodd-Frank Act is less specific about
the treatment of the secured claim, however. Section 210(a)(1)(D)
provides that subject to all legally enforceable security interests
(and security entitlements), the receiver shall take steps to realize
upon the assets of the covered financial company, including through the
sale of assets. The
[[Page 16336]]
Proposed Rule attempts to clarify how the receiver will recognize and
treat secured claims during this process.
Section 380.50 of the Proposed Rule reflects the receiver's
authority in section 210(a)(3)(D)(ii) of the Dodd-Frank Act to
recognize a claim as secured to the extent of the value of the
collateral. The Proposed Rule further provides that in reviewing a
secured claim, the receiver will determine the amount of the claim, the
relative priority of the security interest, whether the claimant's
security interest is legally enforceable and perfected, and the fair
market value of the property or other asset that is subject to the
security interest.
Section 380.51 of the Proposed Rule relates to two provisions of
the Dodd-Frank Act that affect secured claimants, subparagraphs
210(c)(13)(C) and (q)(1)(B). Subparagraph 210(c)(13)(C) precludes most
secured claimants from exercising rights against the pledged collateral
during the 90-day period after the FDIC is appointed receiver of a
covered financial company without the consent of the FDIC as receiver.
The provision also requires the receiver's consent during this 90-day
period before a creditor can exercise any right to terminate,
accelerate, or declare a default under any contract to which the
covered financial company is a party, or obtain possession of or
exercise control over any property of the covered financial company, or
affect any contractual rights of the covered financial company.
Subparagraph 210(q)(1)(B) affects claimants who are secured by a
mortgage or other lien by providing that no property of the FDIC as
receiver shall be subject to levy, attachment, garnishment,
foreclosure, or sale without the consent of the receiver. Such property
includes the property of the covered financial company in receivership.
The Proposed Rule establishes that the FDIC may grant consent under
subparagraphs 210(c)(13)(C) or (q)(1)(B) to a secured creditor to
obtain possession of or exercise control over property of the covered
financial company that serves as its collateral, or to foreclose upon
or sell such collateral. The Proposed Rule sets forth several important
limitations on consents that may be granted by the FDIC including that
any consent is solely at the discretion of the FDIC and that such
consent does not constitute a waiver, relinquishment or limitation on
any rights, powers or remedies granted to the FDIC in any capacity.
Furthermore, the consent right is not assignable to a purchaser of
property from the FDIC.
Section 380.52 of the Proposed Rule confirms that under section
210(c)(12)(A) of the Dodd-Frank Act, the authority of the FDIC to
repudiate a contract of the covered financial company will not have the
effect of avoiding any legally enforceable and perfected security
interests in the property (except those avoidable as fraudulent or
preferential transfers under section 210(a)(11)). The Proposed Rule
further provides that after repudiation the security interest will no
longer secure the contractual obligation that was repudiated but will
instead secure a claim for repudiation damages. Accordingly, the
receiver may consent to the claimant's liquidation of the collateral
and application of the proceeds to the claim for repudiation damages.
Section 380.53 of the Proposed Rule implements the requirement
under section 210(a)(5) of the Dodd-Frank Act that the FDIC establish
an expedited claims determination procedure for secured creditors who
allege that they will suffer irreparable injury if they are compelled
to follow the ordinary claims process. The expedited claims procedure
established by the Proposed Rule tracks the statutory procedures and
time frames set forth in section 210(a)(5). Under such procedures, the
receiver has 90 days to review the secured claim, and the secured
creditor has 30 days to file or continue an action for judicial review
of the claim at the earlier of the end of the 90-day period or the date
the receiver denies all or a portion of the claim.
Section 380.54 of the Proposed Rule addresses how the receiver may
treat property that serves as collateral for a secured claim. A number
of comments were received on the topic of the receiver's valuation and
disposition of collateral, and this section of the Proposed Rule
addresses this issue. Section 380.54 of the Proposed Rule provides an
alternative to the voluntary surrender of collateral by the receiver
set forth in Sec. 380.51 by providing that the receiver may sell the
collateral. The receiver will then consent to the security interest's
attachment to the proceeds of the sale. The receiver may want to sell
the collateral if its value exceeds the amount of the claim it secures.
In the event of a sale by the receiver, the secured creditor will be
permitted to bid and acquire the collateral by offsetting the amount of
its claim against the purchase price of the collateral.
Section 380.55 of the Proposed Rule provides that the FDIC as
receiver may redeem the property of the covered financial company from
a lien held by a secured creditor by paying the creditor in cash the
fair market value of the property up to the value of its lien. The
receiver's ability to exercise this power may be important when the use
or possession of the property would be necessary to the orderly
liquidation of the covered financial company.
III. Solicitation of Comments
The FDIC solicits comments on all aspects of the Proposed Rule. The
FDIC also solicits responses to the following questions:
1. The FDIC has proposed a two-year period for applying the 85
percent consolidated revenue test. Is there another more appropriate
timeframe that the FDIC should use to determine whether a company meets
the 85 percent consolidated revenue test for the purposes of Title II?
2. Is there a more appropriate definition of ``applicable
accounting standards'' than that used in the Proposed Rule?
3. The Proposed Rule includes a rule of construction regarding
investments that are not consolidated. Is this rule of construction
appropriate?
4. The Proposed Rule includes a rule of construction regarding de
minimis investments. Is there a more appropriate approach to
calculating and accounting for revenues that are derived from such de
minimis investments?
5. Section 380.7 of the Proposed Rule establishes standards for a
determination that a senior executive or director is substantially
responsible for the failure of a covered financial company. Under the
Proposed Rule, the loss to the financial condition of the covered
financial company must have materially contributed to the failure of
the covered financial company. The FDIC is considering the use of
additional qualitative and quantitative benchmarks to establish that
the loss materially contributed to the failure of the covered financial
company. Financial indicators under consideration as possible
benchmarks are assets, net worth and capital, and the percentage or
magnitude of loss associated with these benchmarks that would establish
a material loss and trigger substantial responsibility. The FDIC
solicits comments on these and other potential benchmarks that may be
used to effectively evaluate loss.
6. Section 380.8 of the Proposed Rule generally establishes the
criteria for determining whether a company is predominantly engaged in
activities that are financial in nature or incidental thereto. Should
Sec. 380.8 of the Proposed Rule be limited so that it only encompasses
entities that, individually
[[Page 16337]]
or on a consolidated basis, are eligible under section 102 of the Dodd-
Frank Act for designation as nonbank financial companies supervised by
the Board of Governors?
7. Should Sec. 380.8 of the Proposed Rule be limited to companies
that, individually or on a consolidated basis, are designated as
systemically important under the Dodd-Frank Act?
8. In what ways can the definition of administrative expenses under
the Dodd-Frank Act be further harmonized with bankruptcy law and
practice? Section 503(b)(4) of the Bankruptcy Code expressly provides
for the payment of attorneys' and accountants' fees and expenses. Is
there a need for a comparable provision in these rules, in light of the
procedures for administration of the claims process described in the
Proposed Rule?
9. Should ``amounts due to the United States'' be limited to
obligations backed by the full faith and credit of the United States?
To the extent that amounts due to the United States includes amounts
that are not obligations issued by the FDIC to the Secretary of the
Department of Treasury under the Dodd-Frank Act, how will the
additional assessments authorized by section 210(o) of the Act be
applied?
10. How should the value of lost setoff rights be determined?
11. How do the differences in the post insolvency interest rules
contained in Sec. 380.25 and those established under bankruptcy law
and practice materially affect creditors? How would the provisions of
section 506(b) of the Bankruptcy Code allowing certain fees and
expenses to be paid to oversecured creditors to the extent of the value
of their collateral be implemented in an orderly resolution under the
Dodd-Frank Act, if it is applicable? What would be the impact on
creditors if a similar rule is adopted under the Dodd-Frank Act? Or if
one is not adopted?
12. What, if any, additional provisions should be included in the
Proposed Rule regarding the administrative process for the
determination of claims?
13. Proposed section 380.33 requires the FDIC to publish a notice
to creditors to present their claims and specifies that the notice
shall be published in one or more newspapers of general circulation
where the covered financial company has its principal place or places
of business. If the covered financial company is a multi-national
organization, how should the principal place(s) of business be
determined? Should a publication notice be published in each country in
which the covered financial company does business?
14. In the event that publication notices are published in other
countries, what standards should be applied to identify appropriate
``newspapers of general circulation'' to satisfy this regulatory
requirement?
15. Should the consent provisions of subparagraphs 210(c)(13)(C)
and (q)(1)(B) of the Act be interpreted as not applying to a secured
creditor who has possession of or control over collateral before the
appointment of the receiver pursuant to a security arrangement?
16. What, if any, additional provisions should be included in the
Proposed Rule governing the treatment of secured claims and property
that serves as security? Specifically, are there any additional
provisions that are necessary or appropriate regarding obtaining
consent from the receiver to exercise rights against the collateral,
and the sale or redemption of collateral by the receiver? Should
collateral be valued at the time it is surrendered, sold, or redeemed
by the receiver, or some other time? Is it necessary to provide that
after repudiation a security interest will no longer secure the
contractual repayment obligation but will instead secure any claims for
repudiation damages?
17. What, if any, provisions should be changed or added to the
expedited relief procedures for secured creditors who allege
irreparable injury if the ordinary claims process is followed?
IV. Regulatory Analysis and Procedure
A. Paperwork Reduction Act
The Proposed Rule would not involve any new collections of
information pursuant to the Paperwork Reduction Act (44 U.S.C. 3501 et
seq.). Consequently, no information has been submitted to the Office of
Management and Budget for review.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (U.S.C. 601 et seq.) requires an
agency that is issuing a final rule to prepare and make available a
regulatory flexibility analysis that describes the impact of the final
rule on small entities. (5 U.S.C. 603(a)). The Regulatory Flexibility
Act provides that an agency is not required to prepare and publish a
regulatory flexibility analysis if the agency certifies that the final
rule will not have a significant economic impact on a substantial
number of small entities.
Pursuant to section 605(b) of the Regulatory Flexibility Act, the
FDIC certifies that the Proposed Rule will not have a significant
economic impact on a substantial number of small entities. The Proposed
Rule will clarify rules and procedures for the liquidation of a failed
systemically important financial company, which will provide internal
guidance to FDIC personnel performing the liquidation of such a company
and will address any uncertainty in the financial system as to how the
orderly liquidation of such a company would operate. As such, the
Proposed Rule will not have a significant economic impact on small
entities.
C. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
The FDIC has determined that the Proposed Rule will not affect
family well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, enacted as part of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act of 1999
(Pub. L. 105-277, 112 Stat. 2681).
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113
Stat. 1338, 1471) requires the Federal banking agencies to use plain
language in all proposed and final rules published after January 1,
2000. The FDIC has sought to present the Proposed Rule in a simple and
straightforward manner.
List of Subjects in 12 CFR Part 380
Holding companies, Insurance companies.
For the reasons stated above, the Board of Directors of the Federal
Deposit Insurance Corporation amends title 12 part 380 of the Code of
Federal Regulations as follows:
PART 380--ORDERLY LIQUIDATION AUTHORITY
1. The authority citation for part 380 continues to read as
follows:
Authority: 12 U.S.C. 5301 et seq.
2. Revise 380.1 by to read as follows:
Sec. 380.1 Definitions.
(a) For purposes of this part, the following terms are defined as
follows:
(1) The term ``bridge financial company'' means a new financial
company organized by the Corporation in accordance with 12 U.S.C.
5390(h) for the purpose of resolving a covered financial company.
(2) The term ``Corporation'' means the Federal Deposit Insurance
Corporation.
(3) The term ``covered financial company'' means:
(i) A financial company for which a determination has been made
under 12 U.S.C. 5383(b) and
[[Page 16338]]
(ii) Does not include an insured depository institution.
(4) The term ``covered subsidiary'' means a subsidiary of a covered
financial company, other than:
(i) An insured depository institution;
(ii) An insurance company; or
(iii) A covered broker or dealer.
(5) The term ``insurance company'' means any entity that is:
(i) Engaged in the business of insurance;
(ii) Subject to regulation by a State insurance regulator; and
(iii) Covered by a State law that is designed to specifically deal
with the rehabilitation, liquidation or insolvency of an insurance
company.
(b) The following words shall be defined as follows:
(1) Compensation. The word compensation means any direct or
indirect financial remuneration received from the covered financial
company, including, but not limited to, salary; bonuses; incentives;
benefits; severance pay; deferred compensation; golden parachute
benefits; benefits derived from an employment contract, or other
compensation or benefit arrangement; perquisites; stock option plans;
post-employment benefits; profits realized from a sale of securities in
the covered financial company; or any cash or non-cash payments or
benefits granted to or for the benefit of the senior executive or
director.
(2) Director. The word director means any director of a covered
financial company with authority to vote on matters before the board of
directors.
(3) Senior executive. The term senior executive has the meaning set
forth in 12 CFR 380.3(a)(2).
3. Add Sec. Sec. 380.7, 380.8, and 380.9 to read as follows:
Sec. 380.7 Recoupment of compensation from senior executives and
directors.
(a) Substantially Responsible. The Corporation, as receiver of a
covered financial company, may recover from any current or former
senior executive or director substantially responsible for the failed
condition of the covered financial company any compensation received
during the 2-year period preceding the date on which the Corporation
was appointed as the receiver of the covered financial company, except
that, in the case of fraud, no time limit shall apply. A senior
executive or director shall be deemed to be substantially responsible
for the failed condition of a covered financial company that is placed
into receivership under the orderly liquidation authority of the Dodd-
Frank Act if:
(1) He or she failed to conduct his or her responsibilities with
the requisite degree of skill and care required by that position, and
(2) As a result, individually or collectively, caused a loss to the
covered financial company that materially contributed to the failure of
the covered financial company under the facts and circumstances.
(b) Presumptions. The following presumptions shall apply for
purposes of assessing whether a senior executive or director is
substantially responsible for the failed condition of a covered
financial company:
(1) It shall be presumed that a senior executive or director is
substantially responsible for the failed condition of a covered
financial company that is placed into receivership under the orderly
liquidation authority of the Dodd-Frank Act under any of the following
circumstances:
(i) The senior executive or director served as the chairman of the
board of directors, chief executive officer, president, chief financial
officer, or in any other similar role regardless of his or her title if
in this role he or she had responsibility for the strategic,
policymaking, or company-wide operational decisions of the covered
financial company prior to the date that it was placed into
receivership under the orderly liquidation authority of the Dodd-Frank
Act;
(ii) The senior executive or director is adjudged liable by a court
or tribunal of competent jurisdiction for having breached his or her
duty of loyalty to the covered financial company;
(iii) The senior executive was removed from the management of the
covered financial company under 12 U.S.C. 5386(4); or
(iv) The director was removed from the board of directors of the
covered financial company under 12 U.S.C. 5386(5).
(2) The presumption under paragraph (b)(1)(i) of this section may
be rebutted by evidence that the senior executive or director performed
his or her duties with the requisite degree of skill and care required
by that position. The presumptions under paragraphs (b)(1)(ii),)(iii)
and (iv) of this section may be rebutted by evidence that the senior
executive or director did not cause a loss to the covered financial
company that materially contributed to the failure of the covered
financial company under the facts and circumstances.
(3) The presumptions do not apply to:
(i) A senior executive hired by the covered financial company
during the two years prior to the Corporation's appointment as receiver
to assist in preventing further deterioration of the financial
condition of the covered financial company; or
(ii) A director who joined the board of directors of the covered
financial company during the two years prior to the Corporation's
appointment as receiver under an agreement or resolution to assist in
preventing further deterioration of the financial condition of the
covered financial company.
(4) Notwithstanding that the presumption does not apply under
paragraphs (b)(3)(i) and (ii) of this section, the Corporation as
receiver still may pursue recoupment of compensation from a senior
executive or director in paragraphs (b)(3)(i) and (ii) of this section
if they are substantially responsible for the failed condition of the
covered financial company.
(c) Actions by the Corporation as receiver for Losses to the
Covered Financial Company. Pursuing recoupment of compensation under
this section shall not in any way limit or impair the ability of the
Corporation as receiver to pursue any other claims or causes of action
it may have against senior executives and directors of the covered
financial company for losses they cause to the covered financial
company in the same or separate actions.
Sec. 380.8 Predominantly engaged in activities that are financial or
incidental thereto.
(a) For purposes of sections 201(a)(11) and 201(b) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5381(a)(11) and (b)) and this section, a company is predominantly
engaged in activities that the Board of Governors has determined are
financial in nature or incidental thereto for purposes of section 4(k)
of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)), if:
(1) At least 85 percent of the total consolidated revenues of such
company (determined in accordance with applicable accounting standards)
for either of its two most recent fiscal years were derived, directly
or indirectly, from financial activities, or
(2) Based upon all of the relevant facts and circumstances, the
Corporation determines that the consolidated revenues of the company
from financial activities constitute 85 percent or more of the total
consolidated revenues of the company.
(b) For purposes of paragraph (a) of this section, the following
definitions apply:
(1) The term ``total consolidated revenues'' means the total gross
[[Page 16339]]
revenues of the company and all entities subject to consolidation by
the company for a fiscal year.
(2) The term ``financial activity'' means:
(i) Any activity, wherever conducted, described in 12 CFR 225.86 or
any successor regulation;
(ii) Ownership or control of one or more depository institutions;
or
(iii) Any other activity, wherever conducted, determined by the
Board of Governors of the Federal Reserve System, in consultation with
the Secretary of the Treasury, under section 4(k)(1)(A) of the Bank
Holding Company Act (12 U.S.C. 1843(k)(1)(A)) to be financial in nature
or incidental to a financial activity.
(3) The term ``applicable accounting standards'' means the
accounting standards utilized by the company in the ordinary course of
business in preparing its consolidated financial statements, provided
that those standards are:
(i) U.S. generally accepted accounting principles,
(ii) International Financial Reporting Standards, or
(iii) Such other accounting standards that the FDIC determines to
be appropriate.
(c) Effect of other authority. Any activity described in paragraph
(b)(2) of this section is considered financial in nature or incidental
thereto for purposes of this section regardless of whether--
(1) A bank holding company (including a financial holding company
or a foreign bank) may be authorized to engage in the activity, or own
or control shares of a company engaged in such activity, under any
other provisions of the BHC Act or other Federal law including, but not
limited to, section 4(a)(2), section 4(c)(5), section 4(c)(6), section
4(c)(7), section 4(c)(9), or section 4(c)(13) of the Bank Holding
Company Act (12 U.S.C. 1843(a)(2), (c)(5), (c)(6), (c)(7), (c)(9), or
(c)(13)) and the Board's implementing regulations; or
(2) Other provisions of Federal or state law or regulations
prohibit, restrict, or otherwise place conditions on the conduct of the
activity by a bank holding company (including a financial holding
company or foreign bank) or bank holding companies generally.
(d) Rules of construction. For purposes of determining whether a
company is predominantly engaged in financial activities under this
section, the following rules shall apply--
(1) Investments that are not consolidated. Except as provided in
paragraph (d)(2) of this section, revenues derived from an equity
investment by the company in another company, the financial statements
of which are not consolidated with those of the company under
applicable accounting standards, shall be treated as revenues derived
from financial activities, if the other company is predominantly
engaged in financial activities as defined in paragraph (a)(1) of this
section.
(2) Treatment of de minimis investments. A company may treat
revenues derived from an equity investment by the company in another
company as revenues not derived from financial activities, regardless
of the type of activities conducted by the other company, if
(i) The company's aggregate ownership interest in the other company
constitutes less than five percent of any class of outstanding voting
shares, and less than 25 percent of the total equity, of the other
company;
(ii) The financial statements of the other company are not
consolidated with those of the company under applicable accounting
standards;
(iii) The company's investment in the other company is not held in
connection with the conduct by the company or any of its subsidiaries
of an activity that is considered to be financial in nature or
incidental thereto for purposes of this section (such as, for example,
investment advisory activities or merchant banking activities);
(iv) The other company is not--
(A) A depository institution or a subsidiary of a depository
institution;
(B) A bank holding company or savings and loan holding company;
(C) A foreign bank (as defined in section 1(b)(7) of the
International Banking Act of 1978 (12 U.S.C. 3101(7));
(D) Any of the following entities registered with the Securities
and Exchange Commission under the Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.)--
(1) A broker or dealer;
(2) A clearing agency;
(3) A nationally recognized statistical rating organization;
(4) A transfer agent;
(5) An exchange registered as a national securities exchange; or
(6) A security-based swap execution facility, security-based swap
data repository, or security-based swap dealer;
(E) An investment advisor registered with the Securities and
Exchange Commission under the Investment Advisers Act of 1940 (15
U.S.C. 80b-1 et seq.);
(F) Any of the following entities registered with the Commodity
Futures Trading Commission under the Commodity Exchange Act (7 U.S.C. 1
et seq.)--
(1) A futures commission merchant;
(2) A commodity pool operator;
(3) A commodity trading advisor;
(4) An introducing broker;
(5) A derivatives clearing organization;
(6) A retail foreign exchange dealer; or
(7) A swap execution facility, swap data repository, or swap
dealer.
(G) A board of trade designated as a contract market by the
Commodity Futures Trading Commission under the Commodity Exchange Act
(7 U.S.C. 1 et seq.); or
(H) An insurance company subject to supervision by a state or
foreign insurance authority; and
(v) The aggregate dollar amount of revenues treated by the company
as not financially related under this paragraph (d)(2) of this section
does not exceed five percent of the total consolidated financial
revenues of the company in that year.
Sec. 380.9 Treatment of fraudulent and preferential transfers.
(a) Coverage. This section shall apply to all receiverships in
which the FDIC is appointed as receiver under 12 U.S.C. 5382(a) or
5390(a)(1)(E) of a covered financial company or a covered subsidiary,
respectively, as defined in 12 U.S.C. 5381(a)(8) and (9).
(b) Avoidance Standard for Transfer of Property. (1) In applying 12
U.S.C. 5390(a)(11)(H)(i)(II) to a transfer of property for purposes of
12 U.S.C. 5390(a)(11)(A), the Corporation, as receiver of a covered
financial company or a covered subsidiary, which is thereafter deemed
to be a covered financial company pursuant to 12 U.S.C.
5390(a)(1)(E)(ii), shall determine whether the transfer has been
perfected such that a bona fide purchaser from such covered financial
company or such covered subsidiary, as applicable, against whom
applicable law permits such transfer to be perfected cannot acquire an
interest in the property transferred that is superior to the interest
in such property of the transferee.
(2) In applying 12 U.S.C. 5390(a)(11)(H)(i)(II) to a transfer of
real property, other than fixtures, but including the interest of a
seller or purchaser under a contract for the sale of real property, for
purposes of 12 U.S.C. 5390(a)(11)(B), the Corporation, as receiver of a
covered financial company or a covered subsidiary, which is thereafter
deemed to be a covered financial company pursuant to 12 U.S.C.
5390(a)(1)(E)(ii), shall determine whether the transfer has been
perfected
[[Page 16340]]
such that a bona fide purchaser from such covered financial company or
such covered subsidiary, as applicable, against whom applicable law
permits such transfer to be perfected cannot acquire an interest in the
property transferred that is superior to the interest in such property
of the transferee. For purposes of this section, the term fixture shall
be interpreted in accordance with U.S. Federal bankruptcy law.
(3) In applying 12 U.S.C. 5390(a)(11)(H)(i)(II) to a transfer of a
fixture or property, other than real property, for purposes of 12
U.S.C. 5390(a)(11)(B), the Corporation, as receiver of a covered
financial company or a covered subsidiary which is thereafter deemed to
be a covered financial company pursuant to 12 U.S.C. 5390(a)(1)(E)(ii),
shall determine whether the transfer has been perfected such that a
creditor on a simple contract cannot acquire a judicial lien that is
superior to the interest of the transferee, and the standard of whether
the transfer is perfected such that a bona fide purchaser cannot
acquire an interest in the property transferred that is superior to the
interest in such property of the transferee of such property shall not
apply to any such transfer under this subparagraph (b)(3).
(c) Grace period for perfection. In determining when a transfer
occurs for purposes of 12 U.S.C. 5390(a)(11)(B), the Corporation, as
receiver of a covered financial company or a covered subsidiary, which
is thereafter deemed to be a covered financial company pursuant to 12
U.S.C. 5390(a)(1)(E)(ii), shall apply the following standard:
(1) Except as provided in paragraph (c)(2) of this section, a
transfer shall be deemed to have been made:
(i) At the time such transfer takes effect between the transferor
and the transferee, if such transfer is perfected at, or within 30 days
after, such time, except as provided in paragraph (c)(1)(ii) of this
section;
(ii) At the time such transfer takes effect between the transferor
and the transferee, with respect to a transfer of an interest of the
transferor in property that creates a security interest in property
acquired by the transferor--
(A) To the extent such security interest secures new value that
was:
(1) Given at or after the signing of a security agreement that
contains a description of such property as collateral;
(2) Given by or on behalf of the secured party under such
agreement;
(3) Given to enable the transferor to acquire such property; and
(4) In fact used by the transferor to acquire such property; and
(B) That is perfected on or before 30 days after the transferor
receives possession of such property;
(iii) At the time such transfer is perfected, if such transfer is
perfected after the 30-day period described in paragraph (c)(1)(i) or
(ii) of this section, as applicable; or
(iv) Immediately before the appointment of the Corporation as
receiver of a covered financial company or a covered subsidiary which
is thereafter deemed to be a covered financial company pursuant to 12
U.S.C. 5390(a)(1)(E)(ii), if such transfer is not perfected at the
later of--
(A) The earlier of the date of the filing, if any, of a petition by
or against the transferor under Title 11 of the United States Code and
the date of the appointment of the Corporation, as receiver of such
covered financial company or such covered subsidiary; or
(B) 30 days after such transfer takes effect between the transferor
and the transferee.
(2) For the purposes of this paragraph (c), a transfer is not made
until the covered financial company or a covered subsidiary, which is
thereafter deemed to be a covered financial company pursuant to 12
U.S.C. 5390(a)(1)(E)(ii), has acquired rights in the property
transferred.
(d) Limitations. The provisions of this section do not act to
waive, relinquish, limit or otherwise affect any rights or powers of
the Corporation in any capacity, whether pursuant to applicable law or
any agreement or contract.
Sec. 380.10-380.19 [Reserved]
4. Add reserved Sec. Sec. 380.10 through 380.19;
5. Add subpart A, consisting of Sec. Sec. 380.20 through 380.29,
to read as follows:
Subpart A--Priorities
Sec.
380.20 Definitions.
380.21 Priorities.
380.22 Administrative expenses of the receiver.
380.23 Amounts owed to the United States.
380.24 Priority of claims arising out of loss of setoff rights.
380.25 Post-insolvency interest.
380.26 Effect of transfer of assets and obligations to a bridge
financial company.
380.27-380.29 [Reserved]
Sec. 380.20 Definitions.
Allowed claim. The term allowed claim means a claim against the
receivership that is allowed by the Corporation as receiver or upon
which a final non-appealable judgment has been entered in favor of a
claimant against a receivership by a court with jurisdiction to
adjudicate the claim.
Sec. 380.21 Priorities.
(a) Unsecured claims against the covered financial company or the
receiver that are proved to the satisfaction of the Corporation as
receiver for the covered financial company shall be paid in the
following order of priority:
(1) Repayment of debt incurred by or credit obtained by the
Corporation as receiver for a covered financial company, provided that
the Corporation as receiver has determined that it is otherwise unable
to obtain unsecured credit for the covered financial company from
commercial sources.
(2) Administrative expenses of the receiver, as defined in Sec.
380.22, other than those described in paragraph (a)(1) of this
subsection.
(3) Any amounts owed to the United States, as defined in Sec.
380.23.
(4) Wages, salaries, or commissions, including vacation, severance,
and sick leave pay earned by an individual (other than an individual
described in paragraph (a)(9) of this subsection), but only to the
extent of $11,725 for each individual (as adjusted for inflation in
accordance with paragraph (b) of this section) earned not later than
180 days before the date of appointment of the receiver.
(5) Contributions owed to employee benefit plans arising from
services rendered not later than 180 days before the date of
appointment of the receiver, to the extent of the number of employees
covered by each such plan multiplied by $11,725 (as adjusted for
inflation in accordance with paragraph (b) of this section); less the
sum of:
(i) The aggregate amount paid to such employees under paragraph
(a)(4) of this section, plus
(ii) The aggregate amount paid by the Corporation as receiver on
behalf of such employees to any other employee benefit plan.
(6) Any amounts due to creditors who have an allowed claim for loss
of setoff rights as described in Sec. 380.24.
(7) Any other general or senior liability of the covered financial
company (which is not a liability described under paragraphs (a)(8),
(9) or (11) of this section).
(8) Any obligation subordinated to general creditors (which is not
an obligation described under paragraph (a)(9) or (11) of this
section).
(9) Any wages, salaries, or commissions, including vacation,
[[Page 16341]]
severance, and sick leave pay earned, owed to senior executives and
directors of the covered financial company.
(10) Post-insolvency interest in accordance with Sec. 380.25,
provided that interest shall be paid on allowed claims in the order of
priority of the claims set forth in paragraphs (a)(1) through (9) of
this section.
(11) Any amount remaining shall be distributed 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, in proportion to their relative equity
interests.
(b) All payment under subparagraphs (a)(4) and (5) of this section
shall be as adjusted for inflation in the same manner that claims under
11 U.S.C. 507(a)(1)(4) are adjusted for inflation by the Judicial
Conference of the United States pursuant to 11 U.S.C. 104.
(c) All unsecured claims of any category or priority described in
paragraphs (a)(1) through (10) of this section shall be paid in full or
provision made for such payment before any claims of lesser priority
are paid. If there are insufficient funds to pay all claims of a
particular category or priority of claims in full, then distributions
to creditors in such category or priority shall be made pro rata.
Sec. 380.22 Administrative expenses of the receiver.
(a) The term ``administrative expenses of the receiver'' includes
those actual and necessary pre- and post-failure costs and expenses
incurred by the Corporation as receiver in liquidating the covered
financial company; together with any obligations that the Corporation
as receiver for the covered financial company determines to be
necessary and appropriate to facilitate the smooth and orderly
liquidation of the covered financial company. Administrative expenses
of the Corporation as receiver for a covered financial company include:
(1) Contractual rent pursuant to an existing lease or rental
agreement accruing from the date of the appointment of the Corporation
as receiver until the later of:
(i) The date a notice of the dissafirmance or repudiation of such
lease or rental agreement is mailed, or
(ii) The date such disaffirmance or repudiation becomes effective;
provided that the lesser of such lease is not in default or breach of
the terms of the lease.
(2) Amounts owed pursuant to the terms of a contract for services
performed and accepted by the receiver after the date of appointment of
the receiver up to the date the receiver repudiates, terminates,
cancels or otherwise discontinues such contract or notifies the
counterparty that it no longer accepts performance of such services;
(3) Amounts owed under the terms of a contract or agreement
executed in writing and entered into by the Corporation as receiver for
the covered financial company after the date of appointment, or any
contract or agreement entered into by the covered financial company
before the date of appointment of the Corporation as receiver that has
been expressly approved in writing by the Corporation as receiver after
the date of appointment; and
(4) Expenses of the Inspector General of the Corporation incurred
in carrying out its responsibilities under 12 U.S.C. 5391(d).
(b) Obligations to repay any extension of credit obtained by the
Corporation as receiver through enforcement of any contract to extend
credit to the covered financial company that was in existence prior to
appointment of the Corporation as receiver pursuant to 12 U.S.C.
5390(c)(13)(D) shall be treated as administrative expenses of the
receiver. Other unsecured credit extended to the receivership shall be
treated as administrative expenses except with respect to debt incurred
by or credit obtained by the Corporation as receiver for a covered
financial company as described in Sec. 380.21(a)(1).
Sec. 380.23 Amounts owed to the United States.
(a) The term ``amounts owed to the United States'' as used in Sec.
380.21(a)(3) of this subpart includes all amounts due to the United
States or any department, agency or instrumentality of the United
States government, without regard for whether such amount is included
as debt or capital on the books and records of the covered financial
company. Such amounts shall include obligations incurred before and
after the appointment of the receiver. Without limitation, ``amounts
owed to the United States'' include all of the following, which all
shall have equal priority under Sec. 380.21(a)(3):
(1) Amounts owed to the Corporation for any extension of credit by
the Corporation, including any amounts made available under 12 U.S.C.
5384(d), whether such extensions of credit are secured or unsecured;
(2) Unsecured amounts paid or payable by the Corporation pursuant
to its guarantee of any debt issued by the covered financial company
under the Temporary Liquidity Guaranty Program, 12 CFR part 370, any
widely available debt guarantee program authorized under 12 U.S.C.
5612, or any other debt or obligation of any kind or nature that is
guaranteed by the Corporation;
(3) Amounts owed to the Department of Treasury on account of
unsecured tax liabilities of the covered financial company that
directly result from the income or activities of the covered financial
company; and
(4) The amount of any unsecured debt owed to a Federal reserve
bank.
(b) The United States may, in its sole discretion, consent to
subordinate the repayment of any amount due to the United States to any
other obligation of the covered financial company provided that such
consent shall be in writing by the appropriate Department, agency or
instrumentality and shall specify the particular debt, obligation or
other amount to be subordinated including the amount thereof and shall
reference this section or 12 U.S.C. 5390(b)(1); and provided further
that unsecured claims of the United States shall, at a minimum, have a
higher priority than liabilities of the covered financial company that
count as regulatory capital on the books and records of the covered
financial company.
Sec. 380.24 Priority of claims arising out of loss of setoff rights.
(a) Notwithstanding any right of any creditor to offset a mutual
debt owed by such creditor to any covered financial company that arose
before the date of appointment the receiver against a claim of such
creditor against the covered financial company, the Corporation acting
as receiver for the covered financial company may sell or transfer any
assets of the covered financial company to a bridge financial company
or to a third party free and clear of any such rights of setoff.
(b) If the Corporation as receiver sells or transfers any asset
free and clear of the setoff rights of any party, such party shall have
a claim against the receiver in the amount of the value of such setoff
established as of the date of the sale or transfer of such assets,
provided that the setoff rights meet all of the criteria established
under 12 U.S.C. 3590(a)(12).
(c) Any allowed claim pursuant to 12 U.S.C. 5390(a)(12) shall be
paid prior to any other general or senior liability of the covered
financial company described in Sec. 380.21(a)(7) of this
[[Page 16342]]
subpart. In the event that the setoff amount is less than the amount of
the allowed claim, the balance of the allowed claim shall be paid at
the otherwise applicable level of priority for such category of claim
under Sec. 380.21.
Sec. 380.25 Post-insolvency interest.
(a) Date of accrual. Post-insolvency interest shall be paid at the
post-insolvency interest rate calculated on the principal amount of an
allowed claim from the later of:
(1) The date of the appointment of the Corporation as receiver for
the covered financial company; or
(2) In the case of a claim arising or becoming fixed and certain
after the date of the appointment of the receiver, the date such claim
arises or becomes fixed and certain.
(b) Interest rate. Post-insolvency interest rate shall equal, for
any calendar quarter, the coupon equivalent yield of the average
discount rate set on the three-month Treasury bill at the last auction
held by the United States Treasury Department during the preceding
calendar quarter. Post-insolvency interest shall be computed quarterly
and shall be computed using a simple interest method of calculation.
(c) Principal amount. The principal amount of an allowed claim
shall be the full allowed claim amount, including any interest that may
have accrued to the extent such interest is included in the allowed
claim.
(d) Post-insolvency interest distributions. (1) Post-insolvency
interest shall only be distributed following satisfaction of the
principal amount of all creditor claims set forth in Sec. 380.21(a)(1)
through (9) of this subpart and prior to any distribution pursuant to
Sec. 380.21(a)(11).
(2) Post-insolvency interest distributions shall be made at such
time as the Corporation as receiver determines that such distributions
are appropriate and only to the extent of funds available in the
receivership estate. Post-insolvency interest shall be calculated on
the outstanding principal amount of an allowed claim, as reduced from
time to time by any interim distributions on account of such claim by
the Corporation as receiver.
Sec. 380.26 Effect of transfer of assets and obligations to a bridge
financial company.
(a) The purchase of any asset or assumption of any asset or
liability of a covered financial company by a bridge financial company,
through the express agreement of such bridge financial company,
constitutes assumption of the contract or agreement giving rise to such
asset or liability. Such contracts or agreements, together with any
contract the bridge financial company may through its express agreement
enter into with any other party, shall become the obligation of the
bridge financial company from and after the effective date of the
purchase, assumption or agreement, and the bridge financial company
shall have the right and obligation to observe, perform and enforce
their terms and provisions. In the event that the Corporation shall act
as receiver of the bridge financial company any claim arising out of
any breach of such contract or agreement by the bridge financial
company shall be paid as an administrative expense of the receiver of
the bridge financial company.
(b) In the event that the Corporation as receiver of a bridge
financial company shall act to dissolve the bridge financial company,
it shall wind up the affairs of the bridge financial company in
conformity with the laws, rules and regulations relating to the
liquidation of covered financial companies, including the laws, rules
and regulations governing priorities of claims, subject however to the
authority of the Corporation to authorize the bridge financial company
to obtain unsecured credit or issue unsecured debt with priority over
any or all of the other unsecured obligations of the bridge financial
company, provided that unsecured debt is not otherwise generally
available to the bridge financial company.
(c) Upon the final dissolution or termination of the bridge
financial company whether following a merger or consolidation, a stock
sale, a sale of assets, or dissolution and liquidation at the end of
the term of existence of such bridge financial company, any proceeds
that remain after payment of all administrative expenses of the bridge
financial company and all other claims against such bridge financial
company will be distributed to the receiver for the related covered
financial company.
Sec. Sec. 380.27-380.29 [Reserved]
6. Add subpart B, consisting of Sec. Sec. 380.30 through 380.55,
to read as follows:
Subpart B--Receivership Administrative Claims Process
Sec.
380.30 Receivership administrative claims process.
380.31 Definitions.
380.32 Claims bar date.
380.33 Notice requirements.
380.34 Procedures for filing claim.
380.35 Determination of claims.
380.36 Decision period.
380.37 Notification of determination.
380.38 Procedures for seeking judicial review of disallowed claim.
380.39-380.49 [Reserved]
380.50 Determination of secured claims.
380.51 Consent to certain actions.
380.52 Repudiation of secured contract.
380.53 Expedited relief.
380.54 Sale of collateral by receiver.
380.55 Redemption from security interest.
Subpart B--Receivership Administrative Claims Process
Sec. 380.30 Receivership administrative claims process.
The Corporation as receiver of a covered financial company shall
determine claims against the company and the receiver in accordance
with the procedures set forth in 12 U.S.C. 5390(a)(2) through (5) and
the regulations promulgated by the Corporation. The receivership
administrative claims process shall not apply to any claim against a
covered financial company that has been transferred to a bridge
financial company or other party.
Sec. 380.31 Definitions.
(a) Claim means any right to payment from either the covered
financial company or the Corporation as receiver, whether or not such
right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured, or unsecured.
(b) Corporation, Corporation as receiver, and receiver each means
the Federal Deposit Insurance Corporation acting as receiver for a
covered financial company.
(c) Creditor means a person asserting a claim.
Sec. 380.32 Claims bar date.
Upon its appointment as receiver for a covered financial company,
the Corporation shall establish a claims bar date by which date
creditors of the covered financial company shall present their claims,
together with proof, to the receiver. The claims bar date shall be not
less than 90 days after the date on which the notice to creditors to
file claims is first published under Sec. 380.33(a) of this subpart.
Sec. 380.33 Notice requirements.
(a) Notice by publication. Promptly after its appointment as
receiver for a covered financial company, the Corporation shall publish
a notice to the creditors of the covered financial company to file
their claims with the receiver no later than the claims bar date. The
Corporation as receiver shall republish such notice 1 month and 2
months, respectively, after the date the notice is first published. The
notice to
[[Page 16343]]
creditors shall be published in one or more newspapers of general
circulation where the covered financial company has its principal place
or places of business. In addition to such publication in a newspaper,
the Corporation may post the notice on the FDIC's Web site at http://www.fdic.gov.
(b) Notice by mailing. At the time of the first publication of the
notice to creditors, the Corporation as receiver shall mail a notice to
present claims no later than the claims bar date to any creditor shown
in the books and records of the covered financial company. Such notice
shall be sent to the last known address of the creditor appearing in
the books and records or appearing in any claim found in the records of
the covered financial company.
(c) Notice by electronic media. After publishing and mailing notice
as required by paragraphs (a) and (b) of this section, the Corporation
may communicate by electronic media with any claimant who expressly
agrees to such form of communication.
(d) Discovered claimants. Upon discovery of the name and address of
a claimant not appearing in the books and records of the covered
financial company, the Corporation as receiver shall, not later than 30
days after the discovery of such name and address, mail a notice to
such claimant to file claims no later than the claims bar date. Any
claimant not appearing on the books and records that is discovered
before the claims bar date shall be required to file a claim before the
claims bar date, subject to the exception of Sec. 380.35(b)(2) of this
subpart. If a claimant not appearing on the books and records is
discovered after the claims bar date, the Corporation shall notify the
claimant to file a claim by a date not later than 90 days from the date
appearing on the notice that is mailed to such creditor. Any claim
filed after such date shall be disallowed, and such disallowance shall
be final.
Sec. 380.34 Procedures for filing claim.
(a) In general. The Corporation as receiver shall provide, in a
reasonably practicable manner, instructions for filing a claim,
including by the following means:
(1) Providing contact information in the publication notice;
(2) Including in the mailed notice a proof of claim form that has
filing instructions; and (3) Posting filing instructions on the
Corporation's public Web site at http://www.fdic.gov.
(b) When claim is deemed filed. A claim that is mailed to the
receiver in accordance with the instructions established under
paragraph (a) of this section shall be deemed to be filed as of the
date of postmark. A claim that is sent to the receiver by electronic
media or fax in accordance with the instructions established under
paragraph (a) of this section shall be deemed to be filed as of the
date of transmission by the claimant.
(c) Class claimants. If a claimant is a member of a class for
purposes of a class action lawsuit, whether or not the class has been
certified by a court, each claimant must file its claim with the
Corporation as receiver separately.
(d) Indenture trustee. A trustee appointed under an indenture or
other applicable trust document related to investments or other
financial activities may file a claim on behalf of the persons who
appointed the trustee.
(e) Legal effect of filing. (1) Pursuant to 12 U.S.C.
5390(a)(3)(E)(i), the filing of a claim with the receiver shall
constitute a commencement of an action for purposes of any applicable
statute of limitations.
(2) No prejudice to continuation of action. Pursuant to 12 U.S.C.
5390(a)(3)(E)(ii) and subject to 12 U.S.C. 5390(a)(8), the filing of a
claim with the receiver shall not prejudice any right of the claimant
to continue, after the receiver's determination of the claim, any
action which was filed before the date of appointment of the receiver
for the covered financial company.
Sec. 380.35 Determination of claims.
(a) In general. The Corporation as receiver shall allow any claim
received by the receiver on or before the claims bar date if such claim
is proved to the satisfaction of the Corporation. The Corporation as
receiver may disallow any portion of any claim by a creditor or claim
of a security, preference, setoff, or priority which is not proved to
the satisfaction of the Corporation.
(b) Disallowance of claims filed after the claims bar date. (1)
Except as otherwise provided in this section, any claim filed after the
claims bar date shall be disallowed, and such disallowance shall be
final, as provided by 12 U.S.C. 5390(a)(3)(C)(i).
(2) Certain exceptions. Paragraph (b)(1) of this section shall not
apply with respect to any claim filed by a claimant after the claims
bar date and such claim shall be considered by the receiver if:
(i) The claimant did not receive notice of the appointment of the
receiver in time to file such claim before the claims bar date, or the
claim did not accrue until after the claims bar date, and
(ii) The claim is filed in time to permit payment. A claim is
``filed in time to permit payment'' when it is filed before a final
distribution is made by the receiver.
Sec. 380.36 Decision period.
(a) In general. Prior to the 180th day after the date on which a
claim against a covered financial company or the Corporation as
receiver is filed with the Corporation, the Corporation shall notify
the claimant whether it allows or disallows the claim.
(b) Extension of time. The 180-day period described in subsection
(a) of this section may be extended by a written agreement between the
claimant and the Corporation executed not later than 180 days after the
date on which the claim against the covered financial company or the
Corporation as receiver is filed with the Corporation (the ``extended
claims determination period''). If an extension is agreed to, the
Corporation shall notify the claimant whether it allows or disallows
the claim prior to the end of the extended claims determination period.
Sec. 380.37 Notification of determination.
(a) In general. The Corporation as receiver shall notify the
claimant by mail of the decision to allow or disallow the claim. Notice
shall be mailed to the address of the claimant as it last appears on
the books, records, or both of the covered financial company; in the
claim filed by the claimant with the Corporation as receiver; or in
documents submitted in the proof of the claim. If the claimant has
filed the claim electronically, the receiver may notify the claimant of
the determination by electronic means.
(b) Contents of notice of disallowance. If the Corporation as
receiver disallows a claim, the notice to the claimant shall contain a
statement of each reason for the disallowance, and the procedures
required to file or continue an action in court.
(c) Failure to notify deemed to be disallowance. If the Corporation
does not notify the claimant before the end of the 180-day claims
determination period, or before the end of any extended claims
determination period, the claim shall be deemed to be disallowed, and
the claimant may file or continue an action in court.
Sec. 308.38 Procedures for seeking judicial determination of
disallowed claim.
(a) In general. In order to seek a judicial determination of a
claim that has been disallowed, in whole or in part, by the Corporation
as receiver, the claimant, pursuant to 12 U.S.C. 5390(a)(4)(A), may
either:
(1) File suit on such claim in the district or territorial court of
the United
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States for the district within which the principal place of business of
the covered financial company is located; or
(2) Continue an action commenced before the date of appointment of
the receiver, in the court in which the action was pending.
(b) Timing. Pursuant to 12 U.S.C. 5390(a)(3)(A), a claimant who
seeks a judicial determination of a claim disallowed by the Corporation
must file suit on such claim before the end of the 60-day period
beginning on the earlier of:
(1) The date of any notice of disallowance of such claim;
(2) The end of the 180-day claims determination period (unless such
period has been extended with respect to such claim under Sec.
380.36(b) of this subpart); or
(3) If the claims determination period was extended with respect to
such claim under Sec. 380.36(b), the end of such extended claims
determination period.
(c) Statute of limitations. Pursuant to 12 U.S.C. 5390(a)(4)(C), if
any claimant fails to file suit on such claim (or to continue an action
on such claim commenced before the date of appointment of the
Corporation as receiver) prior to the end of the 60-day period
described in 12 U.S.C. 5390(a)(4)(B), the claim shall be deemed to be
disallowed (other than any portion of such claim which was allowed by
the receiver) as of the end of such period, such disallowance shall be
final, and the claimant shall have no further rights or remedies with
respect to such claim.
(d) Jurisdiction. Pursuant to 12 U.S.C. 5390(a)(9)(D), unless the
claimant has first exhausted its administrative remedies by obtaining a
determination from the receiver regarding a claim filed with the
receiver, no court shall have jurisdiction over:
(1) Any claim or action for payment from, or any action seeking a
determination of rights with respect to, the assets of any covered
financial company for which the Corporation has been appointed
receiver, including any assets which the Corporation may acquire from
itself as such receiver; or
(2) Any claim relating to any act or omission of such covered
financial company or the Corporation as receiver.
Sec. Sec. 380.39-380.49 [Reserved]
Sec. 380.50 Determination of secured claims.
In the case of a claim against a covered financial company that is
secured by any property of the covered financial company, the receiver
shall determine the amount of the claim; whether the claimant's
security interest is legally enforceable and perfected; the priority of
the claimant's security interest; and the fair market value of the
property that is subject to the security interest. The receiver shall
treat the portion of the claim that exceeds an amount equal to the fair
market value of such property or other asset as an unsecured claim.
Sec. 380.51 Consent to certain actions.
(a) A secured creditor may seek the consent of the Corporation as
receiver to obtain possession of or exercise control over any property
of the covered financial company that serves as collateral for the
secured claim. Such consent may include the liquidation of such
property by commercially reasonable methods taking into account
existing market conditions, provided no involvement of the receiver is
required.
(b) A party may seek the consent of the Corporation as receiver to
the foreclosure or sale of any property of the covered financial
company that serves as collateral for the secured claim. When the
consent of the Corporation is sought hereunder, the secured creditor
shall submit to the Corporation by certified mail a written request for
the consent of the Corporation to the proposed action by the secured
creditor. After the Corporation has gathered and analyzed the necessary
information, the Corporation shall notify the secured creditor of its
determination whether to grant consent as expeditiously as possible. If
the Corporation determines not to grant consent, the Corporation shall
include in the notification each reason why consent is not being given.
(c) Consents to be granted under this section are to be provided
solely at the discretion of the Corporation. No person shall have any
right to bring any action to direct or compel the granting of any
consent under this section, or to pursue any claim or cause of action
based on the alleged failure of the Corporation or any person acting on
its behalf to take any action whatsoever under this section. Any
consent granted by the Corporation as receiver under this section shall
not act to waive or relinquish any rights granted to the Corporation in
any capacity, pursuant to any other applicable law or any agreement or
contract, and shall not be construed as waiving, limiting or otherwise
affecting the rights or powers of the Corporation to take any action or
to exercise any power not specifically mentioned, including but not
limited to any rights, powers or remedies of the Corporation regarding
transfers taken in contemplation of the institution's insolvency or
with the intent to hinder, delay or defraud the institution or the
creditors of such institution, or that is a fraudulent transfer under
applicable law. The right to consent under this section may not be
assigned or transferred to any purchaser of property from the
Corporation.
Sec. 380.52 Repudiation of secured contract.
(a) To the extent that a contract to which a covered financial
company is a party is secured by property of the company, the
repudiation of the contract by the Corporation as receiver shall not be
construed as permitting the avoidance of any legally enforceable and
perfected security interest in the property, but the security interest
shall be deemed to secure any claim for repudiation damages.
(b) The Corporation as receiver may consent to the exercise of any
legal or contractual rights against the property, including
liquidation, for the purpose of applying the value of the property or
its proceeds up to the amount of the allowed claim for damages for
repudiation.
Sec. 380.53 Expedited relief.
(a) In general. A secured creditor may seek expedited relief
outside the administrative claims process upon alleging:
(1) 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 for which the Corporation has been
appointed receiver; and
(2) That irreparable injury will occur if the claims procedure
established under this subpart is followed.
(b) Determination period. No later than the end of the 90-day
period beginning on the date on which a request for expedited relief is
filed, the Corporation shall determine:
(1) Whether to allow or disallow such claim, or any portion
thereof; or
(2) Whether such claim should be determined pursuant to the
procedures established pursuant to this subpart.
(c) Notice to claimant. The Corporation shall notify the claimant
of the determination made under this section and if the claim is
disallowed, provide a statement of each reason for the disallowance and
the procedure for obtaining a judicial determination.
(d) Period for filing or renewing suit. Any claimant who files a
request for expedited relief shall be permitted to file suit (or
continue a suit filed before the date of appointment of the Corporation
as receiver) seeking a determination of the rights of the claimant with
respect to such security
[[Page 16345]]
interest (or such security entitlement) after the earlier of:
(1) The end of the 90-day period beginning on the date of the
filing of a request for expedited relief; or
(2) The date on which the Corporation denies the claim or a portion
thereof.
(e) Statute of limitations. If an action described in paragraph (d)
of this section is not filed, or the motion to renew a previously filed
suit is not made, before the end of the 30-day period beginning on the
date on which such action or motion may be filed in accordance with
paragraph (d) of this section, the claim shall be deemed to be
disallowed as of the end of such period (other than any portion of such
claim which was allowed by the receiver), such disallowance shall be
final, and the claimant shall have no further rights or remedies with
respect to such claim.
Sec. 380.54 Sale of collateral by receiver.
(a) The Corporation as receiver may sell property of the covered
financial company that is subject to a security interest. In such a
case, the purchaser of such property shall take free and clear of the
security interest, and the security interest shall attach to the
proceeds of the sale. Such proceeds, up to the allowed amount of the
secured claim, shall be remitted to the claimant within a reasonable
time after the sale.
(b) If the receiver sells property subject to a security interest
under subsection (a) of this section, a holder of such security
interest may purchase the property from the receiver, and may offset
its claim against the purchase price of such property.
(c) This section shall not apply with respect to any property that
is subject to a security interest described in 12 U.S.C.
5390(a)(3)(D)(iii)(II).
Sec. 380.55 Redemption from security interest.
The Corporation as receiver may pay the secured creditor the fair
market value of the property subject to a security interest up to the
amount of the allowed secured claim in full and retain such property
free and clear of such security interest.
By order of the Board of Directors.
Dated at Washington, DC, this 15th day of March 2011.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2011-6705 Filed 3-22-11; 8:45 am]
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