Involuntary Liquidations - NCUA's Enforcement Manual
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:
⺠Prompt return of members' shares.
⺠Payment to the creditors.
⺠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:
⺠Abandonment of the credit union's
operations and affairs by the officials.
⺠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.
⺠Other specific serious violations
of its charter, its bylaws, the FCU
Act, or regulations that cannot be
reversed and that may cause insolvency.
⺠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:
⺠File a written statement with NCUA setting
forth the reasons why it should not be
placed into involuntary liquidation; or
⺠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
⺠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.
