Samantha: Hello, this is Samantha Shares.
This episode covers N C U Aâs authority to Involuntarily Liquidate a Credit Union.
The following is an audio version of N.C.U.A.âs Liquidation authorities.
This podcast is educational and is not legal advice.
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And now liquidations.
1.
What is the purpose of this chapter?
This chapter provides guidance in processing involuntary liquidations.
2.
What are the types of involuntary liquidations?
a.
Title I involuntary
Undersection120 of the FCU Act, 12 U.S.C.
section1766, the NCUA Board can place a solvent federal credit union into
involuntary liquidation for violations of its charter, its bylaws, the FCU
Act, or the NCUA Rules and Regulations.
Also, under section120, 12 U.S.C.
section1766, the NCUA Board can place a federal credit union into involuntary
liquidation upon finding that the board or liquidating agent did not
conduct a voluntary liquidation in an orderly or efficient manner or in
the best interests of the members.
The rules and regulations relating to these administrative proceedings
are contained in NCUA Rules and Regulations section747, Subpart E.
The effect of this action is the elimination of a federal credit
union as a legal entity after due process provided for by section120(b)
of the FCU Act, 12 U.S.C.
section1766, and Part 747, Subpart E, of the NCUA Rules and Regulations.
It is the most drastic enforcement action that can be taken against
a solvent federal credit union.
Since Title I liquidation is not a commonly used administrative
action, examiner involvement will differ from case-to-case.
b.
Title II involuntary
Section 207 of the FCU Act, 12 U.S.C.
section1787, requires the NCUA Board to close for liquidation any federal credit
union it deems bankrupt or insolvent.
In these cases, the NCUA Board must also appoint itself as liquidating agent.
In addition, the NCUA
Board can accept appointment as liquidating agent of a bankrupt
or insolvent federally-insured, state-chartered credit union.
c.
Purchase and assumption
A purchase and assumption (P&A) is an action similar to a merger, but unlike a
merger the NCUA Board places the credit union into involuntary liquidation first.
In a P&A, another credit union or another financial institution assumes all or part
of the assets, liabilities, and shares.
3.
What are the goals for an involuntary liquidation?
The primary goals of an involuntary liquidation are:
âº Prompt return of members' shares.
âº Payment to the creditors.
âº Disposition of the remaining assets to the NCUSIF.
4.
What are the grounds for an involuntary liquidation of an insolvent credit
union pursuant to section207 of FCU Act?
The grounds for this most severe action is insolvency or bankruptcy as defined in
section700.2(e) of NCUA Rules and Regulations.
For a liquidation pursuant to section207, 12 U.S.C.
1787, of the FCU Act, the credit union has no right to a
pre-closure administrative hearing.
The federal credit union's charter is immediately revoked and the credit union
is placed into involuntary liquidation.
The credit union may, however, challenge the action in U.S.
District Court within 10 days.
It is critical, therefore, that the finding of insolvency be
based upon tangible evidence and indisputable circumstances using the
most current information available.
The examiner prepares a supplemental memorandum for the liquidation package
that contains all significant data to support the recommended action,
including an analysis of the various exceptions to insolvency set forth in
section700.2(e) of the regulations.
It is imperative that the administrative record adequately supports insolvency.
The examiner must be prepared to testify in court to establish the reasonableness
of the insolvency calculation.
For this reason, involuntary liquidations require the concurrence of the Office
of General Counsel to ensure that the liquidation package is legally sufficient.
A Notice of Revocation of Charter and Involuntary Liquidation and
Appointment of a Liquidating Agent will be served on the federal credit union.
The order is effective immediately upon service, and all assets, books and
records of the credit union immediately become the property of the NCUA.
Agents for the Liquidating Agent will be appointed as provided in
section207(a) of the FCU Act, 12 U.S.C.
section1787.
5.
What are the grounds for an involuntary liquidation of a solvent credit union?
Pursuant to the authority in section120(b)(1) of the FCU Act, 12 U.S.C.
section1766(b)(1), the NCUA Board may suspend or revoke the charter of a
federal credit union that has violated any provision of its charter, its
bylaws, the FCU Act, or NCUA regulations.
This type of action may also be taken for reasons of bankruptcy, but
generally liquidation of insolvent credit unions are initiated under
section207 of the FCU Act, 12 U.S.C.
section1787.
Examples of conditions that may warrant recommending revocation of charter
in a solvent credit union include:
âº Abandonment of the credit union's operations and affairs by the officials.
âº Plant closing and officials refusing to vote to present the question
of liquidation to the members.
Such plant closing may force insolvency under the concept of an ongoing concern,
or may cause a dissipation of the assets and expose the creditors and the
NCUSIF to a greater than normal risk.
âº Other specific serious violations of its charter, its bylaws, the FCU
Act, or regulations that cannot be reversed and that may cause insolvency.
âº Serious operational deficiencies that the officials have not acted
to correct and which, if allowed to continue, may cause insolvency.
Abandonment shall be deemed to have occurred when all or most of the
elected and the appointed officials have demonstrated by their actions, or failure
to act, an intent to end operations.
Proof is evidenced when an active quorum cannot or will not be
formed by the remaining officials.
The examiner recommends a Notice of Intent to Revoke Charter whenever the
timeframe for due process will not create a greater risk of loss to the members,
the creditors, and the NCUSIF than exists at the time of the recommendation.
The examiner should be aware that the credit union will continue
to conduct business during the effective time of this notice.
The examiner determines whether or not a greater risk for loss exists by allowing
the credit union to conduct business in the interim based on the conditions
and the circumstances in each case.
However, if a greater risk for loss is likely to exist, a recommendation
for conservatorship or a Notice of Suspension of Charter and Intent to
Revoke Charter and Place Into Involuntary Liquidation may be appropriate.
The credit union has 40 days from the date the Notice of Intent is served to:
âº File a written statement with NCUA setting forth the reasons why it should not be
placed into involuntary liquidation; or
âº In lieu of a written statement, request that an oral hearing be
conducted in accordance with Part 747 of the NCUA Rules and Regulations; or
âº Consent to the Notice by resolution of its board of directors.
The written statement, request for an oral hearing, or consent must be
accompanied by a certified copy of a resolution by the board, signed by the
president and the secretary authorizing such statement, request, or consent.
At the time of delivery of the Notice, the examiner advises the officials of
their options and of the timeframes in which their options must be exercised.
The examiner makes it known to the officials that if the credit union fails
to exercise any of its alternatives as provided in the NCUA Rules and Regulations
within the prescribed timeframes, it will be deemed to have consented
to the action being sought by NCUA.
6.
What is involved in an involuntary liquidation of a state-chartered
federally insured credit union?
When the appropriate state authority declares an insured state credit union
insolvent or bankrupt, the state usually appoints the NCUA Board as liquidating
agent, receiver, or conservator.
Under delegated authority, the president of AMAC becomes the
liquidating agent in these cases.
See Chapter 5 of this Manual, Administering PCA Directives and Related
Actions, for guidance in placing a FISCU into liquidation under PCA.
This concludes the NCUA liquidation authorities.
If your Credit union could use assistance with your exam, reach out to Mark Treichel
on LinkedIn, or at mark Treichel dot com.
This is Samantha Shares and we Thank you for listening.