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Samantha: Hello, this is Samantha Shares.

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Last week N C U A liquidated a 50 million
dollar credit union in New Jersey.

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It is rare that they would not
do a purchase and assumption,

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merger or conseratorship.

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This episode covers N C U A’s authority
to Involuntarily Liquidate a Credit Union.

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The following is an audio
version of N.C.U.A.’s

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Liquidation authorities.

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This podcast is educational
and is not legal advice.

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We are sponsored by Credit Union
Exam Solutions Incorporated, whose

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team has over two hundred and
Forty years of National Credit

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Union  Administration experience.

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We assist our clients with N C
U A so they save time and money.

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If you are worried about a recent,
upcoming or in process N C U A

00:00:44.512 --> 00:00:48.932
examination, reach out to learn how they
can assist at Mark Treichel DOT COM.

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Also check out our other podcast called
With Flying Colors where we provide tips

00:00:53.752 --> 00:00:56.332
on how to achieve success with N C U A.

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And now liquidations.

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1.

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What is the purpose of this chapter?

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This chapter provides guidance in
processing involuntary liquidations.

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2.

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What are the types of
involuntary liquidations?

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a.

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Title I involuntary

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Under of the F C U Act, the N C U
A Board can place a solvent federal

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credit union into involuntary
liquidation for violations of its

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charter, its bylaws, the F C U Act,
or the N C U A Rules and Regulations.

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Also, the N C U A Board can place a
federal credit union into involuntary

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liquidation upon finding that the
board or liquidating agent did not

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conduct a voluntary liquidation in
an orderly or efficient manner or in

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the best interests of the members.

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The rules and regulations relating
to these administrative proceedings

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are contained in N C U A Rules and
Regulations section 747,  The effect

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of this action is the elimination
of a federal credit union as a legal

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entity after due process provided for
by section 120(b) of the FCU Act, 12.

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It is the most drastic enforcement
action that can be taken against

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a solvent federal credit union.

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Since Title I liquidation is not
a commonly used administrative

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action, examiner involvement
will differ from case-to-case.

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b.

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Title II involuntary

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Section 207 of the F C U Act,
requires the N C U A Board to close

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for liquidation any federal credit
union it deems bankrupt or insolvent.

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In these cases, the N C U A Board must
also appoint itself as liquidating agent.

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In addition, the N C U A

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Board can accept appointment as
liquidating agent of a bankrupt

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or insolvent federally-insured,
state-chartered credit union.

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c.

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Purchase and assumption

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A purchase and assumption (P & A) is an
action similar to a merger, but unlike a

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merger the NCUA Board places the credit
union into involuntary liquidation first.

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In a P & A, another credit union
or another financial institution

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assumes all or part of the
assets, liabilities, and shares.

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3.

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What are the goals for an
involuntary liquidation?

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The primary goals of an
involuntary liquidation are:

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►	Prompt return of members' shares.

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►	Payment to the creditors.

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►	Disposition of the remaining
assets to the N C U S I F.

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4.

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What are the grounds for an involuntary
liquidation of an insolvent credit

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union pursuant to the F C U Act?

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The grounds for this most severe action
is insolvency or bankruptcy as defined

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in N C U A Rules and Regulations.

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For a liquidation pursuant to the F C
U Act, the credit union has no right to

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a pre-closure administrative hearing.

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The federal credit union's charter is
immediately revoked and the credit union

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is placed into involuntary liquidation.

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The credit union may, however,
challenge the action in U.S.

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District Court within 10 days.

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It is critical, therefore, that
the finding of insolvency be

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based upon tangible evidence and
indisputable circumstances using the

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most current information available.

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The examiner prepares a supplemental
memorandum for the liquidation package

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that contains all significant data to
support the recommended action, including

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an analysis of the various exceptions to
insolvency set forth in the regulations.

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It is imperative that the administrative
record adequately supports insolvency.

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The examiner must be prepared to testify
in court to establish the reasonableness

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of the insolvency calculation.

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For this reason, involuntary liquidations
require the concurrence of the Office

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of General Counsel to ensure that the
liquidation package is legally sufficient.

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A Notice of Revocation of Charter
and Involuntary Liquidation and

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Appointment of a Liquidating Agent will
be served on the federal credit union.

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The order is effective immediately
upon service, and all assets, books and

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records of the credit union immediately
become the property of the N C U A.

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Agents for the Liquidating Agent will be
appointed as provided in the F C U Act.

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5.

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What are the grounds for an involuntary
liquidation of a solvent credit union?

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Pursuant to the authority in the F C
U Act, the N C U A Board may suspend

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or revoke the charter of a federal
credit union that has violated any

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provision of its charter, its bylaws,
the F C U Act, or N C U A regulations.

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This type of action may also be
taken for reasons of bankruptcy, but

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generally liquidation of insolvent
credit unions are initiated under

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section 207 of the F C U Act.

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Examples of conditions that may warrant
recommending revocation of charter

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in a solvent credit union include:

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Abandonment of the credit union's
operations and affairs by the officials.

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Plant closing and officials refusing
to vote to present the question

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of liquidation to the members.

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Such plant closing may force insolvency
under the concept of an ongoing concern,

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or may cause a dissipation of the assets
and expose the creditors and the N C

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U S I F to a greater than normal risk.

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Other specific serious violations of
its charter, its bylaws, the F C U

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Act, or regulations that cannot be
reversed and that may cause insolvency.

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Serious operational deficiencies
that the officials have not acted

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to correct and which, if allowed
to continue, may cause insolvency.

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Abandonment shall be deemed to have
occurred when all or most of the

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elected and the appointed officials have
demonstrated by their actions, or failure

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to act, an intent to end operations.

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Proof is evidenced when an active
quorum cannot or will not be

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formed by the remaining officials.

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The examiner recommends a Notice of
Intent to Revoke Charter whenever the

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timeframe for due process will not create
a greater risk of loss to the members,

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the creditors, and the N C U S I F than
exists at the time of the recommendation.

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The examiner should be aware that
the credit union will continue

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to conduct business during the
effective time of this notice.

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The examiner determines whether or not a
greater risk for loss exists by allowing

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the credit union to conduct business
in the interim based on the conditions

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and the circumstances in each case.

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However, if a greater risk for loss
is likely to exist, a recommendation

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for conservatorship or a Notice of
Suspension of Charter and Intent to

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Revoke Charter and Place Into Involuntary
Liquidation may be appropriate.

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The credit union has 40 days from the
date the Notice of Intent is served to:

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File a written statement with N
C U A setting forth the reasons

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why it should not be placed
into involuntary liquidation; or

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In lieu of a written statement, request
that an oral hearing be conducted

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in accordance with Part 747 of the
N C U A  Rules and Regulations; or

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►	Consent to the Notice by resolution
of its board of directors.

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The written statement, request for
an oral hearing, or consent must be

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accompanied by a certified copy of a
resolution by the board, signed by the

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president and the secretary authorizing
such statement, request, or consent.

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At the time of delivery of the Notice,
the examiner advises the officials of

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their options and of the timeframes in
which their options must be exercised.

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The examiner makes it known to
the officials that if the credit

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union fails to exercise any of its
alternatives as provided in the N

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C U A Rules and Regulations within
the prescribed timeframes, it will

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be deemed to have consented to the
action being sought by N C U A.

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6.

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What is involved in an involuntary
liquidation of a state-chartered

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federally insured credit union?

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When the appropriate state authority
declares an insured state credit union

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insolvent or bankrupt, the state usually
appoints the N C U A Board as liquidating

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agent, receiver, or conservator.

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Under delegated authority, the
president of A M A C becomes the

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liquidating agent in these cases.

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See Chapter 5 of this Manual,
Administering P C A Directives and

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Related Actions, for guidance in placing
a FISCU into liquidation under P C A.

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This concludes the N C U
A liquidation authorities.

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If your Credit union could use assistance
with your exam, reach out to Mark Treichel

00:09:06.057 --> 00:09:08.807
on LinkedIn, or at mark Treichel dot com.

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This is Samantha Shares and
we Thank you for listening.