WEBVTT NOTE This file was generated by Descript 00:00:00.480 --> 00:00:02.400 Samantha: Hello, this is Samantha Shares. 00:00:03.020 --> 00:00:08.070 This episode covers N C U A’s authority to Involuntarily Liquidate a Credit Union. 00:00:08.787 --> 00:00:12.817 The following is an audio version of N.C.U.A.’s Liquidation authorities. 00:00:13.317 --> 00:00:16.497 This podcast is educational and is not legal advice. 00:00:16.997 --> 00:00:21.047 We are sponsored by Credit Union Exam Solutions Incorporated, whose 00:00:21.047 --> 00:00:24.137 team has over two hundred and Forty years of National Credit 00:00:24.137 --> 00:00:25.987 Union Administration experience. 00:00:26.557 --> 00:00:30.277 We assist our clients with N C U A so they save time and money. 00:00:30.697 --> 00:00:34.667 If you are worried about a recent, upcoming or in process N C U A 00:00:34.667 --> 00:00:39.087 examination, reach out to learn how they can assist at Mark Treichel DOT COM. 00:00:39.557 --> 00:00:43.907 Also check out our other podcast called With Flying Colors where we provide tips 00:00:43.907 --> 00:00:46.487 on how to achieve success with N C U A. 00:00:47.224 --> 00:00:48.464 And now liquidations. 00:00:49.142 --> 00:00:49.522 1. 00:00:50.102 --> 00:00:51.912 What is the purpose of this chapter? 00:00:52.525 --> 00:00:56.425 This chapter provides guidance in processing involuntary liquidations. 00:00:57.106 --> 00:00:57.486 2. 00:00:58.066 --> 00:01:00.536 What are the types of involuntary liquidations? 00:01:01.112 --> 00:01:01.372 a. 00:01:01.942 --> 00:01:03.262 Title I involuntary 00:01:04.013 --> 00:01:08.523 Undersection120 of the FCU Act, 12 U.S.C. 00:01:08.523 --> 00:01:13.093 section1766, the NCUA Board can place a solvent federal credit union into 00:01:13.093 --> 00:01:17.963 involuntary liquidation for violations of its charter, its bylaws, the FCU 00:01:17.963 --> 00:01:20.593 Act, or the NCUA Rules and Regulations. 00:01:21.093 --> 00:01:24.523 Also, under section120, 12 U.S.C. 00:01:24.523 --> 00:01:29.913 section1766, the NCUA Board can place a federal credit union into involuntary 00:01:29.913 --> 00:01:33.553 liquidation upon finding that the board or liquidating agent did not 00:01:33.553 --> 00:01:37.833 conduct a voluntary liquidation in an orderly or efficient manner or in 00:01:37.833 --> 00:01:39.383 the best interests of the members. 00:01:40.111 --> 00:01:43.561 The rules and regulations relating to these administrative proceedings 00:01:43.561 --> 00:01:48.721 are contained in NCUA Rules and Regulations section747, Subpart E. 00:01:49.331 --> 00:01:52.441 The effect of this action is the elimination of a federal credit 00:01:52.441 --> 00:01:57.551 union as a legal entity after due process provided for by section120(b) 00:01:57.551 --> 00:02:00.801 of the FCU Act, 12 U.S.C. 00:02:00.801 --> 00:02:06.901 section1766, and Part 747, Subpart E, of the NCUA Rules and Regulations. 00:02:07.381 --> 00:02:10.661 It is the most drastic enforcement action that can be taken against 00:02:10.661 --> 00:02:12.401 a solvent federal credit union. 00:02:13.103 --> 00:02:16.523 Since Title I liquidation is not a commonly used administrative 00:02:16.523 --> 00:02:19.963 action, examiner involvement will differ from case-to-case. 00:02:20.720 --> 00:02:21.000 b. 00:02:21.380 --> 00:02:23.030 Title II involuntary 00:02:23.715 --> 00:02:28.575 Section 207 of the FCU Act, 12 U.S.C. 00:02:28.575 --> 00:02:33.095 section1787, requires the NCUA Board to close for liquidation any federal credit 00:02:33.095 --> 00:02:35.845 union it deems bankrupt or insolvent. 00:02:36.425 --> 00:02:40.855 In these cases, the NCUA Board must also appoint itself as liquidating agent. 00:02:41.465 --> 00:02:42.775 In addition, the NCUA 00:02:43.590 --> 00:02:46.890 Board can accept appointment as liquidating agent of a bankrupt 00:02:46.960 --> 00:02:50.340 or insolvent federally-insured, state-chartered credit union. 00:02:51.055 --> 00:02:51.505 c. 00:02:51.865 --> 00:02:53.145 Purchase and assumption 00:02:53.833 --> 00:02:58.763 A purchase and assumption (P&A) is an action similar to a merger, but unlike a 00:02:58.763 --> 00:03:03.693 merger the NCUA Board places the credit union into involuntary liquidation first. 00:03:04.213 --> 00:03:09.413 In a P&A, another credit union or another financial institution assumes all or part 00:03:09.413 --> 00:03:11.843 of the assets, liabilities, and shares. 00:03:12.625 --> 00:03:13.065 3. 00:03:13.635 --> 00:03:16.125 What are the goals for an involuntary liquidation? 00:03:16.685 --> 00:03:19.515 The primary goals of an involuntary liquidation are: 00:03:20.345 --> 00:03:22.125 ► Prompt return of members' shares. 00:03:22.835 --> 00:03:24.075 ► Payment to the creditors. 00:03:24.733 --> 00:03:27.473 ► Disposition of the remaining assets to the NCUSIF. 00:03:28.376 --> 00:03:28.776 4. 00:03:29.376 --> 00:03:32.886 What are the grounds for an involuntary liquidation of an insolvent credit 00:03:32.886 --> 00:03:36.316 union pursuant to section207 of FCU Act? 00:03:36.899 --> 00:03:41.729 The grounds for this most severe action is insolvency or bankruptcy as defined in 00:03:42.394 --> 00:03:46.644 section700.2(e) of NCUA Rules and Regulations. 00:03:47.343 --> 00:03:51.203 For a liquidation pursuant to section207, 12 U.S.C. 00:03:51.203 --> 00:03:55.423 1787, of the FCU Act, the credit union has no right to a 00:03:55.513 --> 00:03:57.383 pre-closure administrative hearing. 00:03:57.953 --> 00:04:01.833 The federal credit union's charter is immediately revoked and the credit union 00:04:01.833 --> 00:04:04.163 is placed into involuntary liquidation. 00:04:04.813 --> 00:04:07.973 The credit union may, however, challenge the action in U.S. 00:04:07.973 --> 00:04:09.753 District Court within 10 days. 00:04:10.173 --> 00:04:13.293 It is critical, therefore, that the finding of insolvency be 00:04:13.293 --> 00:04:17.373 based upon tangible evidence and indisputable circumstances using the 00:04:17.373 --> 00:04:19.283 most current information available. 00:04:19.984 --> 00:04:23.884 The examiner prepares a supplemental memorandum for the liquidation package 00:04:23.884 --> 00:04:27.574 that contains all significant data to support the recommended action, 00:04:27.884 --> 00:04:31.924 including an analysis of the various exceptions to insolvency set forth in 00:04:31.924 --> 00:04:35.184 section700.2(e) of the regulations. 00:04:35.504 --> 00:04:39.684 It is imperative that the administrative record adequately supports insolvency. 00:04:40.154 --> 00:04:44.484 The examiner must be prepared to testify in court to establish the reasonableness 00:04:44.484 --> 00:04:46.174 of the insolvency calculation. 00:04:46.594 --> 00:04:50.744 For this reason, involuntary liquidations require the concurrence of the Office 00:04:50.744 --> 00:04:55.284 of General Counsel to ensure that the liquidation package is legally sufficient. 00:04:56.026 --> 00:04:59.546 A Notice of Revocation of Charter and Involuntary Liquidation and 00:04:59.546 --> 00:05:03.386 Appointment of a Liquidating Agent will be served on the federal credit union. 00:05:03.946 --> 00:05:08.286 The order is effective immediately upon service, and all assets, books and 00:05:08.286 --> 00:05:12.116 records of the credit union immediately become the property of the NCUA. 00:05:12.646 --> 00:05:15.846 Agents for the Liquidating Agent will be appointed as provided in 00:05:15.846 --> 00:05:20.006 section207(a) of the FCU Act, 12 U.S.C. 00:05:20.006 --> 00:05:21.416 section1787. 00:05:22.170 --> 00:05:22.630 5. 00:05:23.350 --> 00:05:27.210 What are the grounds for an involuntary liquidation of a solvent credit union? 00:05:27.831 --> 00:05:34.601 Pursuant to the authority in section120(b)(1) of the FCU Act, 12 U.S.C. 00:05:34.651 --> 00:05:38.491 section1766(b)(1), the NCUA Board may suspend or revoke the charter of a 00:05:38.491 --> 00:05:42.761 federal credit union that has violated any provision of its charter, its 00:05:42.761 --> 00:05:45.981 bylaws, the FCU Act, or NCUA regulations. 00:05:46.301 --> 00:05:50.171 This type of action may also be taken for reasons of bankruptcy, but 00:05:50.171 --> 00:05:53.891 generally liquidation of insolvent credit unions are initiated under 00:05:53.891 --> 00:05:58.391 section207 of the FCU Act, 12 U.S.C. 00:05:58.391 --> 00:05:59.401 section1787. 00:06:00.108 --> 00:06:03.948 Examples of conditions that may warrant recommending revocation of charter 00:06:03.948 --> 00:06:05.978 in a solvent credit union include: 00:06:06.768 --> 00:06:10.658 ► Abandonment of the credit union's operations and affairs by the officials. 00:06:11.339 --> 00:06:14.849 ► Plant closing and officials refusing to vote to present the question 00:06:14.849 --> 00:06:16.389 of liquidation to the members. 00:06:16.899 --> 00:06:21.659 Such plant closing may force insolvency under the concept of an ongoing concern, 00:06:21.859 --> 00:06:25.649 or may cause a dissipation of the assets and expose the creditors and the 00:06:25.649 --> 00:06:27.869 NCUSIF to a greater than normal risk. 00:06:28.662 --> 00:06:33.282 ► Other specific serious violations of its charter, its bylaws, the FCU 00:06:33.282 --> 00:06:37.662 Act, or regulations that cannot be reversed and that may cause insolvency. 00:06:38.346 --> 00:06:41.926 ► Serious operational deficiencies that the officials have not acted 00:06:41.926 --> 00:06:45.736 to correct and which, if allowed to continue, may cause insolvency. 00:06:46.553 --> 00:06:49.693 Abandonment shall be deemed to have occurred when all or most of the 00:06:49.693 --> 00:06:53.943 elected and the appointed officials have demonstrated by their actions, or failure 00:06:53.943 --> 00:06:56.483 to act, an intent to end operations. 00:06:56.903 --> 00:07:00.273 Proof is evidenced when an active quorum cannot or will not be 00:07:00.273 --> 00:07:02.003 formed by the remaining officials. 00:07:02.767 --> 00:07:06.437 The examiner recommends a Notice of Intent to Revoke Charter whenever the 00:07:06.437 --> 00:07:10.727 timeframe for due process will not create a greater risk of loss to the members, 00:07:10.787 --> 00:07:14.747 the creditors, and the NCUSIF than exists at the time of the recommendation. 00:07:15.247 --> 00:07:18.317 The examiner should be aware that the credit union will continue 00:07:18.317 --> 00:07:21.357 to conduct business during the effective time of this notice. 00:07:22.030 --> 00:07:26.100 The examiner determines whether or not a greater risk for loss exists by allowing 00:07:26.100 --> 00:07:29.810 the credit union to conduct business in the interim based on the conditions 00:07:29.940 --> 00:07:31.760 and the circumstances in each case. 00:07:32.190 --> 00:07:36.350 However, if a greater risk for loss is likely to exist, a recommendation 00:07:36.350 --> 00:07:40.310 for conservatorship or a Notice of Suspension of Charter and Intent to 00:07:40.310 --> 00:07:44.330 Revoke Charter and Place Into Involuntary Liquidation may be appropriate. 00:07:45.097 --> 00:07:49.587 The credit union has 40 days from the date the Notice of Intent is served to: 00:07:50.312 --> 00:07:54.622 ► File a written statement with NCUA setting forth the reasons why it should not be 00:07:54.622 --> 00:07:57.232 placed into involuntary liquidation; or 00:07:57.946 --> 00:08:01.126 ► In lieu of a written statement, request that an oral hearing be 00:08:01.126 --> 00:08:06.836 conducted in accordance with Part 747 of the NCUA Rules and Regulations; or 00:08:07.549 --> 00:08:10.859 ► Consent to the Notice by resolution of its board of directors. 00:08:11.590 --> 00:08:15.420 The written statement, request for an oral hearing, or consent must be 00:08:15.420 --> 00:08:19.580 accompanied by a certified copy of a resolution by the board, signed by the 00:08:19.580 --> 00:08:24.030 president and the secretary authorizing such statement, request, or consent. 00:08:24.742 --> 00:08:28.672 At the time of delivery of the Notice, the examiner advises the officials of 00:08:28.672 --> 00:08:32.842 their options and of the timeframes in which their options must be exercised. 00:08:33.432 --> 00:08:37.132 The examiner makes it known to the officials that if the credit union fails 00:08:37.132 --> 00:08:41.922 to exercise any of its alternatives as provided in the NCUA Rules and Regulations 00:08:41.922 --> 00:08:45.502 within the prescribed timeframes, it will be deemed to have consented 00:08:45.502 --> 00:08:47.602 to the action being sought by NCUA. 00:08:48.305 --> 00:08:48.795 6. 00:08:49.615 --> 00:08:52.735 What is involved in an involuntary liquidation of a state-chartered 00:08:52.735 --> 00:08:54.905 federally insured credit union? 00:08:55.485 --> 00:08:59.225 When the appropriate state authority declares an insured state credit union 00:08:59.225 --> 00:09:03.965 insolvent or bankrupt, the state usually appoints the NCUA Board as liquidating 00:09:04.005 --> 00:09:06.145 agent, receiver, or conservator. 00:09:06.625 --> 00:09:09.795 Under delegated authority, the president of AMAC becomes the 00:09:09.795 --> 00:09:11.785 liquidating agent in these cases. 00:09:12.456 --> 00:09:16.876 See Chapter 5 of this Manual, Administering PCA Directives and Related 00:09:16.876 --> 00:09:21.496 Actions, for guidance in placing a FISCU into liquidation under PCA. 00:09:22.171 --> 00:09:24.781 This concludes the NCUA liquidation authorities. 00:09:25.455 --> 00:09:29.625 If your Credit union could use assistance with your exam, reach out to Mark Treichel 00:09:29.625 --> 00:09:32.375 on LinkedIn, or at mark Treichel dot com. 00:09:32.925 --> 00:09:35.575 This is Samantha Shares and we Thank you for listening.