The Board of Directors of the Federal Deposit Insurance Corporation, or FDIC, approved a Notice of Proposed Rulemaking, or NPR, to further clarify application of the orderly liquidation authority, or OLA, contained in Title II of the Dodd-Frank Act. The FDIC believes the NPR builds on the interim rule approved by the FDIC on January 18, 2011, which clarified certain discrete issues under the OLA.
For over 30 years, most bankruptcy courts have approved plans where the secured lender “gifts” a distribution to a junior class in order to obtain a consensual plan. These courts note that the distribution is from the secured lender’s property (not estate property) and the secured lender can do what it wants with its own property.
Background
On March 16, 2011, a Rhode Island Superior Court heard arguments on whether Rhode Island's solvent restructuring statute violates the Contracts Clause of the U.S. Constitution. The case stems from a global commutation plan developed pursuant to this statute by GTE Reinsurance Company Limited in order to settle all of its obligations under various property and casualty risks reinsured by GTE Re decades ago. Critics contend that the Rhode Island law enables policies and contracts to be modified without policyholder consent in violation of the U.S. Constitution.
In its continued effort to implement 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”), on March 15, 2011, the Board of Directors of the Federal Depository Insurance Corporation (the “FDIC”) approved the Notice of Proposed Rulemaking Implementing Certain Orderly Liquidation Authority Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Proposed Rules”).
The short answer to the title question is “no.” However, under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or the “Act”), the Federal Deposit Insurance Corporation (“FDIC”) has limited “back-up” authority to place into liquidation an insurance company that (i) meets certain criteria as respects the nature of its business and (ii) is essentially “too big to fail.” This liquidation proceeding would, however, still be under the relevant state insurance liquidation laws.1
On March 15, 2011, the Federal Deposit Insurance Corporation (“FDIC”) issued a notice of proposed rulemaking (“NPR”) to implement certain orderly liquidation authority (“OLA”) provisions of Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).
Earlier this month, the Chapter 7 Trustee (the "Trustee") appointed in the Indalex bankruptcy began filing avoidance actions against various Indalex creditors. For those not familiar with the Indalex bankruptcy, Indalex filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware on March 20, 2009. Prior to filing bankruptcy, Indalex was one of the largest aluminum extruders in the United States.
The Commonwealth Court of Pennsylvania, which is overseeing the liquidation of the insurer in the coverage dispute, entered an order approving the insurer’s denial of coverage under an excess policy for a $20 million settlement that two individual insureds paid into a Federal Trade Commission (FTC) redress fund. The court adopted the recommendation of the referee appointed to hear the coverage dispute, who applied California law and concluded that the insurer was entitled to summary judgment following briefing and oral argument. Wiley Rein represented the insurer before the referee.