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Title II Orderly Liquidation Authority (“OLA”). OVERVIEW One of the primary purposes of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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Presentation on theme: "Title II Orderly Liquidation Authority (“OLA”). OVERVIEW One of the primary purposes of the Dodd-Frank Wall Street Reform and Consumer Protection Act."— Presentation transcript:

1 Title II Orderly Liquidation Authority (“OLA”)

2 OVERVIEW One of the primary purposes of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) is to provide an insolvency regime for the orderly liquidation of financial companies whose financial condition and size present systemic financial risk (i.e., “are too big to fail”). Under that regime, the FDIC may be appointed receiver of a “covered financial company.” The Dodd-Frank Act applies to numerous types of “financial companies” that are not federally insured depositary institutions and, therefore, are not subject to the insolvency regime under the Federal Deposit Insurance Act (the “FDIA”) and that would otherwise be subject to various different insolvency regimes including the United States Bankruptcy Code (the “Bankruptcy Code”), the Securities Investor Protection Act (“SIPA”) (in the case of registered brokers or dealers) or state insurance rehabilitation and liquidation proceedings (in the case of certain insurance companies). 2

3 The Dodd-Frank Act provides that it and not the Bankruptcy Code shall exclusively apply to and govern all matters relating to “covered financial companies” for which the FDIC is appointed as receiver and in such case no provisions of the Bankruptcy Code or the rules issued thereunder shall apply, except as expressly provided otherwise. However, in the case of a covered broker or dealer or a covered insurance company, the Dodd-Frank Act does not completely supplant the existing regime or the authority of the governmental entity charged with oversight of such entities. In the case of a covered broker or dealer, the SEC and SIPC will play a role. Upon appointment of the FDIC as receiver, SIPC will be appointed as trustee, and subject to certain exceptions, the provisions of SIPA will apply to the determination of claims and the liquidation of those assets retained in the receivership of the broker or dealer and not transferred by the FDIC to a bridge financial company. The orderly liquidation authority will govern the liquidation of the bridge financial company. In the case of a covered insurance company, the liquidation of the insurance company that is a covered financial company will be carried out by the appropriate regulator under applicable state law, rather than the FDIC, unless such state regulator does not file the appropriate judicial action under state law within 60 days after designation of the insurance company or its parent as a covered financial company. In such case, the FDIC will have the authority to stand in the place of the state regulator and file the appropriate judicial action to place the insurance company in liquidation under applicable state law. 3

4 The Dodd-Frank Act incorporates many of the powers of the FDIC found in Sections 11 and 13 of the FDIA but also adopts certain provisions of the Bankruptcy Code in order to harmonize the rules applying to creditors’ rights under the Bankruptcy Code. This overview will cover the entities that may become a covered financial company under the Dodd-Frank Act, the procedures for the appointment of the FDIC as receiver of a financial company, some of the interplay of various governmental entities in the OLA process and some of the key provisions concerning the powers of the FDIA and the rights of creditors of the covered financial company and any covered subsidiaries. 4

5 Companies That May Be Subject to the Dodd-Frank Act A.Covered Financial Company means a “financial company” for which a determination has been made by the Treasury Secretary to appoint the FDIC as receiver. 1.Financial Company is defined as any company that is incorporated or organized under any provision of Federal law or the laws of any State that is a a.bank holding company; b.nonbank financial company supervised by the Federal Reserve Board (“FRB”) (including an insurance company or a securities broker-dealer that has been determined by the Council to be systemically important and, therefore, subject to supervision by the FRB;) c.company predominantly engaged in activities that the FRB has determined are financial in nature or incidental thereto for the purpose of section 4(k) of the Bank Holding Company Act, or d.subsidiary of any of the foregoing that is predominantly engaged in activities that are financial in nature or incidental thereto (other than an insured depository institution or an insurance company). 5

6 i.No company shall be deemed predominantly engaged in activities of a financial nature or incidental thereto for the purposes of section 4(k) of the Bank Holding Company Act if such activities constitute less than 85% of the total consolidated revenues of such company, as the FDIC, in consultation with the Treasury Secretary will establish by regulation. ii.In determining whether a company is a financial company, the consolidated revenues derived from the ownership or control of a depository institution are to be included. 2.A financial company does not include an insured depository institution (which would be subject to the insolvency regime under the FDIA). 3.A Farm Credit System institution, “governmental entity” (undefined), any Federal Home Loan Bank, Freddie Mac and Fannie Mae are expressly excluded from the definition of financial company. 6

7 B.Covered Subsidiary means a subsidiary of a covered financial company other than (1) an insured depository institution, (2) an insurance company or (3) a covered broker or dealer. 1.Insurance Company is defined as any entity that is (A) engaged in the business of insurance; (B) subject to regulation by a State insurance regulator and (C) covered by a State law that is designed to specifically deal with the rehabilitation, liquidation, or insolvency of an insurance company. 2.Covered Broker or Dealer means a covered financial company that is a broker or dealer that (A) is registered with the Securities and Exchange Commission under section 15(b) of the Securities Exchange Act of 1934 and (B) is a member of SIPC. 7

8 A.Vote Based on Written Recommendation Required 1.On their own initiative or at the request of the Secretary of the Treasury, the FDIC and the FRB may make a recommendation with respect to whether the Treasury Secretary should appoint the FDIC as receiver for a financial company. Such recommendation may be made upon a 2/3 vote of the members of their respective boards. 2.Where the financial company or its largest U.S. subsidiary (as measured by total assets as of the end of the previous calendar quarter) is a covered broker or dealer, the Securities and Exchange Commission (the “SEC”) and the FRB, at the request of the Treasury Secretary or on their own initiative, shall make a recommendation upon a vote of at least 2/3 of the members of the FRB then sitting and of the commissioners of the SEC then serving and in consultation with the FDIC. 3.If the financial company is an insurance company or its largest U.S. subsidiary is an insurance company, the designation must be approved by the Director of the Federal Insurance Office (formed pursuant to the Dodd-Frank Act) and at least 2/3 of the members of the FRB and in consultation with FDIC. Systemic Risk Determination Required for Appointment of the FDIC as Receiver 8

9 B.Recommendation Required for Vote 1.an evaluation of whether the financial company is “in default or in danger of default”; The statute defines “in default or in danger of default” as (a) a case has been, or will likely be commenced promptly with respect to the financial company under the Bankruptcy Code; (b) the financial company has incurred, or is likely to incur, losses that will deplete all or substantially all of its capital, and there is no reasonable prospect for the company to avoid such depletion; (c) the assets of the financial company are, or are likely to be, less than its obligations to creditors and others; or (d) the financial company is, or is likely to be, unable to pay its obligations (other than obligations subject to a bona fide dispute) in the normal course of business. 2.a description of the effect that the default would have on financial stability in the U.S.; 3.a description of the effect the default would have on economic conditions or financial stability for low income, minority, or underserved communities; 9

10 4.a recommendation regarding the nature and extent of action to be taken under Title II regarding the financial company; 5.an evaluation of the likelihood of a private sector alternative to prevent the default of the financial company; 6.an evaluation of why a case under the Bankruptcy Code is not appropriate for the financial company; 7.an evaluation of the effects on creditors, counterparties, and shareholders of the financial company and other market participants; and 8.an evaluation of whether the company satisfies the definition of a financial company. 10

11 C.Treasury Secretary Determination 1.Upon such recommendation, the Treasury Secretary (in consultation with the President) may make the determination to appoint the FDIC as receiver if he determines that the following criteria are met: a.the financial company is “in default or in danger of default;” b.the failure of the financial company and its resolution under otherwise applicable Federal or State law would have serious adverse effects on financial stability in the U.S.; c.no viable private sector alternative is available to prevent the default of the financial company; d.any effect on the claims or interests of creditors, counterparties, and shareholders of the financial company and other market participants as a result of the actions to be taken is appropriate, given the impact that any action taken under Title II would have on financial stability in the U.S.; e.any ordinarily liquidation would avoid or mitigate such adverse effects, taking into consideration the effectiveness of the action in mitigating potential adverse effects on the financial system, the cost to the general fund of the Treasury, and the potential to increase excessive risk taking on the part of creditors, counterparties and shareholders in the financial company; f.a Federal regulatory agency has ordered the financial company to convert all of its convertible debt instruments that are subject to the regulatory order; and g.the company satisfies the definition of a “financial company”. 11

12 D.Notice of Determination If upon such recommendation the Treasury Secretary determines to appoint the FDIC as receiver of the covered financial company, the Treasury Secretary must notify the covered financial company and the FDIC of such determination. E.Appointment of FDIC as Receiver Either Upon Consent of the Covered Financial Company or Pursuant to Court Order 1.Consent. If the covered financial company acquiesces or consents to the appointment of the FDIC as receiver the FDIC will be appointed. Members of the board of directors of the covered financial company will not to liable to shareholders or creditors of the covered financial company for acquiescing or consenting in good faith to the appointment of the FDIC as receiver. 2.District Court Petition. If the financial company does not consent, the Treasury Secretary will file a petition (under seal) with the United States District Court for the District of Columbia (the “District Court”) to appoint the FDIC as receiver of the financial company. 12

13 3.Notice and Hearing. The financial company is provided confidential notice and opportunity for a confidential hearing before the District Court. 4.District Court Review. The scope of review is limited to whether the Treasury Secretary’s determination that the covered financial company is in default or in danger of default and satisfies the definition of a financial company is neither arbitrary nor capricious. If the District Court does not make a determination within 24 hours of receipt of the petition, then (a) the petition will be granted by operation of law; (b) the Treasury Secretary must appoint the FDIC as receiver; and (c) the liquidation under Title II is automatically commenced. 5.Appeal Process. The U.S. Court of Appeals for the District of Columbia (the “Court of Appeals”) has jurisdiction for an expedited appeal of the lower court decision by either the Treasury Secretary or the financial company. The U.S. Supreme Court has discretionary jurisdiction to review the decision of the Court of Appeals on an expedited basis. 13

14 F.Appointment of the FDIC as Receiver for a Covered Subsidiary 1.The FDIC may appoint itself as receiver of any covered subsidiary of a covered financial company that is organized under Federal law or the laws of any State, if the FDIC and the Treasury Secretary jointly determine that (a) the covered subsidiary is in default or in danger of default; (b) the action would avoid or mitigate serious adverse effects on the financial stability or economic conditions of the U.S.; and (c) the action would facilitate the orderly liquidation of the covered financial company. 2.The FDIC has the same powers and rights with respect to the covered subsidiary as it does with respect to the covered financial company. G.Governing Principles for Liquidation of a Covered Financial Company or a Covered Subsidiary The liquidation must be conducted in a manner that mitigates financial systemic risk and minimizes moral hazard so that (a) creditors and shareholders will bear the losses of the financial company; (b) management responsible for the financial company’s condition will not be retained; and (c) the FDIC and other appropriate agencies will take all steps necessary and appropriate to assure that all parties, including management and third parties, having responsibility for the financial company’s condition bear losses consistent with their responsibility, including actions for damages, restitution, and recoupment of compensation and other gains not compatible with such responsibility. 14

15 H.Consultation Required by FDIC with Regulatory Agencies of the Covered Financial Company and its Covered Subsidiaries 1.The FDIC is required to consult with the primary financial regulatory agencies for the covered financial company and its covered subsidiaries for the purposes of ensuring an orderly liquidation. 2.The FDIC may consult with or acquire the services of, any outside experts, as appropriate to inform and aid the FDIC in the orderly liquidation process. 3.The FDIC is to consult with the primary financial regulatory agencies of any subsidiaries of the covered financial company that are not covered subsidiaries, and coordinate with such regulators regarding the treatment of such solvent subsidiaries and the separate resolution of any such insolvent subsidiaries under other governmental authority, as appropriate. 4.The FDIC is to consult with the SEC and the SIPC in the case of any covered financial company for which the FDIC is appointed as receiver that is a broker or dealer registered with the SEC under section 15(b) of the Securities Exchange Act and is a member of SIPC for the purpose of determining whether to transfer to a “bridge financial company” organized by the FDIC, as receiver, customer accounts of the covered financial company. 15

16 I.Funding for Orderly Liquidation 1.Upon appointment as receiver, the FDIC may in its discretion make available to the receivership, subject to the conditions in section 206 and subject to the plan described in section 210(n)(11) of the Dodd-Frank Act, funds for the orderly liquidation of the covered financial company. The funds so provided, include funds used for (a) making loans to, or purchasing any debt obligation of, the covered financial company or any covered subsidiary; (b) purchasing or guaranteeing against loss the assets of the covered financial company or any covered subsidiary, directly or through an entity established by the FDIC for that purpose; (c) assuming or guaranteeing the obligations of the covered financial company or any covered subsidiary to one or more third parties; (d) taking a lien on any or all assets of the covered financial company or any covered subsidiary, including a first priority lien on all unencumbered assets of the covered financial company or any covered subsidiary to secure repayment of any transactions conducted for such funding; (e) selling or transferring all, or any part of such acquired assets, liabilities, or obligations of the covered financial company or any covered subsidiary; and (f) making additional payments pursuant to certain provisions of section 210 of the Dodd-Frank Act. 2.All funds so provided are given priority over all other claims. 3.All funds expended in the liquidation of a financial company must be recovered from the disposition of assets of the financial company or must be the responsibility of the financial sector through assessments. 16

17 J.Orderly Liquidation Fund 1.The Establishment of the Fund. The “Orderly Liquidation Fund” is a fund established within the Treasury and made available for the FDIC to borrow funds to carry out its rights and duties under the Orderly Liquidation Authority. 2.Borrowing from the Treasury. Following the appointment of the FDIC as receiver for a covered financial company, the FDIC would have the authority to fund the cost of an orderly liquidation of a covered financial company by issuing debt securities to the Treasury Secretary. The maximum amount of such obligations incurred by the FDIC for each covered financial company shall be equal to: a.10% of the total consolidated assets of the covered financial company, based on its most recent financial statement available, during the 30-day period immediately following the appointment of the FDIC as receiver; and b.90% of the fair value of the total consolidated assets of the covered financial company that are available for repayment, after such 30-day period. 3.Required Repayment. The Treasury Secretary may not provide any funding to the FDIC unless an agreement is in effect between the Treasury Secretary and the FDIC that provides: a.a specific plan and schedule for repayment of the amount borrowed and b.demonstrates that the FDIC will be able to repay the outstanding balance to the Treasury and the interest accruing on such balance within 60 months (or such longer period as approved by the Treasury). 4.Imposition of Assessments. The FDIC is required to impose risk-based assessments if such assessments are needed to repay the obligations of the FDIC to the Treasury within the 60 months. 17

18 K.Time Limit on Receivership Authority 1.The appointment of the FDIC as receiver is to terminate 3 years after the date of its appointment as receiver, subject to a.extension by the FDIC for up to 1 additional year, if the Chairperson of the FDIC determines and certifies in writing to the Committee on Banking, Housing, and Urban Affairs of the Senate Committee on Financial Services of the House of Representatives that the continuation of the receivership is necessary (i) to (A) maximize the net present value return from the sale or other disposition of the assets of the covered financial company or (B) minimize the amount of loss realized upon the sale or other disposition of the assets of the covered financial company and (ii) to protect the stability of the financial system; b.extension of another year if the Chairperson of the FDIC, with the concurrence of the Treasury Secretary, submit the certifications referred to above: and c.further extension solely for the purpose of completing ongoing litigation in which the FDIC as receiver is a party provided that the appointment of the FDIC terminates not later than 90 days after the completion of the litigation if (a) the Council determines, inter alia, that the FDIC used its best efforts to conclude the receivership within five years and the Council determines that the completion of longer-term responsibilities in the ongoing litigation justifies the need for an extension. 18

19 L.Rule Making The FDIC, in consultation with the Council, must adopt regulations to implement Title II, including regulations with respect to the rights, interests and priorities of creditors, counterparties, security entitlement holders, or other persons with respect to any covered financial company or any assets or other property of or held by such covered financial company and address the potential for conflicts of interest between or among individual receiverships established under Title II or under the FDIA. To the extent possible, the FDIC must seek to harmonize regulations implementing Title II with the insolvency laws that would otherwise apply to the covered financial company. 19

20 Section 210 of the Act addresses a broad variety of topics concerning the powers and duties of the FDIC in the liquidation proceedings as well as the rights of creditors with respect to, among other things, the treatment of rights of setoff, avoidance actions, transfer and repudiation of executory contracts, transfer and repudiation of qualified financial contracts, allowance and priority of payment of claims. Some of these provisions adopt the language or approach taken under the Bankruptcy Code while others adopt the language or approach of the FDIA. Still other provisions address matters unique to Title II. A sampling of notable provisions follows: Provisions Applying to All Orderly Liquidations 20

21 A.Certain Powers of FDIC as Receiver 1.Successor to covered financial company. The FDIC succeeds to all rights, titles, powers and privileges of the covered financial company and its assets, and of any stockholder, member, officer or director of such company. 2.Power to form bridge financial company. The FDIC may form a bridge financial company in order to transfer assets of a covered financial company or a covered subsidiary and to have the bridge financial company succeed to and assume certain rights, powers, authorities and privileges of the covered financial company or covered subsidiary. 3.Mergers and transfers of assets. The FDIC, as receiver for the covered financial company may merge the covered financial company or transfer any assets or liabilities of or held by the covered financial company without obtaining approval or consent with respect to the transfer, subject to any Federal agency approval and Federal antitrust review. 4.Coordination with foreign financial authorities for foreign assets or operations. Where the covered financial company has assets or operations in a country other than the U.S., the FDIC must coordinate, to the maximum extent possible, with the appropriate foreign financial authorities regarding the orderly liquidation of the covered financial company. 5.Choice of noninsolvency law. Except as otherwise provided in Title II, the applicable noninsolvency law shall be determined by noninsolvency choice of law rules otherwise applicable to the claims, rights, titles, persons, or entities at issue. 21

22 6.Subpoena and stay powers. a.The FDIC as receiver shall have the same subpoena power as established under section 8(n) of the FDIA, as if the covered financial company were an insured depositary institution. b.Unlike the Bankruptcy Code, the OLA does not impose a blanket automatic stay, but the FDIC as receiver may seek a stay of litigation pending against the covered financial company for a period not to exceed 90 days, which stay shall be granted by such court against all parties to the litigation. B.Certain FDIC Powers and Related Creditors’ Rights 1.Rights of Setoff. Creditors of a covered financial company retain setoff rights on terms generally similar to those applicable under the Bankruptcy Code. However, the FDIC as receiver may sell or transfer any assets to a third party or bridge financial company free and clear of the setoff rights of any party (thereby destroying mutuality), except that such party shall be entitled to a claim, subordinate to the claims payable for the administrative expenses of the receiver, any amounts owed to the U.S. (unless the U.S. agrees otherwise) and wages, salaries or commissions and other amounts owed to employees up to $11,725 per individual earned not later than 180 days before the appointment of the FDIC as receiver. 22

23 2.Avoidance Powers a.The FDIC as receiver for a covered financial company may avoid preferential transfers substantially on terms similar to those applicable under the Bankruptcy Code. b.The FDIC as receiver for a covered financial company may avoid fraudulent transfers on terms similar to those applicable under the Bankruptcy Code. c.The FDIC as receiver may recover post receivership transfers not authorized by the FDIC. d.To the extent that a transfer is avoided under a, b, or c, the FDIC may recover property transferred, or if a court so orders, the value of such property at the time of such transfer from (i) the initial transferee of such transfer or the person for whose benefit such transfer was made; or (ii) any immediate or mediate transferee. 23

24 e.The rights of the FDIC are superior to those of a trustee or any other party (other than a Federal agency) under the Bankruptcy Code. f.Rights and defenses of transferees or obligees include the following: i.The FDIC may not recover from (x) any transferee that takes for value, including in satisfaction of or to secure a present or antecedent debt, in good faith, and without knowledge of the voidability of a transfer avoided or (y) any mediate or immediate good faith transferee of such transfer; ii.a transferee or obligee from which the FDIC seeks to recover a transfer or avoid an obligation under the foregoing has the same defenses available to a transferee or obligee from which a trustee seeks to recover a transfer or avoid an obligation under section 547, 548 and 549 of the Bankruptcy Code; iii.The FDIC’s authority to recover a transfer or avoid an obligation is subject to section 546(b) (timing of post OLA perfection of an interest in property), 546(c) (reclamation), 547(c) (including, contemporaneous exchange for new value, ordinary course of business and subsequent new value defenses to preferential transfers) and section 548(c) (rights of good faith transferee for value) of the Bankruptcy Code. 24

25 3.FDIC Repudiation of Executory Contracts and Leases a.Subject to certain conditions, the FDIC may disaffirm or repudiate any contract or lease to which the covered financial company is a party within a “reasonable time.” b.As under the FDIA, damages for disaffirmance or repudiation of an executory contract actual direct compensatory damages determined as of the date of the appointment of the FDIC as receiver. The claim does not include punitive or exemplary damages or damages for lost profits. c.Damages for leases in which the covered financial company is the lessee of the lease are limited to accrued rent and amounts owed to the date that notice of disaffirmance or repudiation is mailed or becomes effective unless the lessor is in default of the lease. The lessee is not entitled to damages under any acceleration clause or other penalty provision. 25

26 4.FDIC Repudiation of Qualified Financial Contracts As under the FDIA, damages for disaffirmance or repudiation of a qualified financial contract will be limited to actual direct compensatory damages which will include normal and reasonable costs of cover or other reasonable measures of damages utilized in the industries for such contract determined as of the date of disaffirmance or repudiation. 5.FDIC Repudiation or Disaffirmance of Debt Obligations In the case of debt obligations for borrowed money or evidenced by a security, actual direct compensatory damages shall be no less than the amount lent plus accrued interest plus any accreted original issue discount as of the date of appointment of the FDIC as receiver and to the extent that an allowed secured claim is secured by property the value of which is greater than the amount of such claim and any accrued interest through the date of repudiation or disaffirmance, such accrued interest. 26

27 6.FDIC Repudiation or Disaffirmance of Contingent Obligation In the case of a contingent obligation of a covered financial company consisting of any obligation under a guarantee, letter of credit, loan commitment, or similar credit obligation, the FDIC may, by rule or regulation, prescribe that actual direct compensatory damages shall be no less than the estimated value of the claim as of the date the FDIC was appointed receiver of the covered financial company, as such value is measured based on the likelihood that such contingent claim would become fixed and the probable magnitude thereof. 7.Safe Harbor Provisions for Qualified Financial Contracts These provisions are similar to the provisions of the FDIA and allow termination, liquidation and acceleration of such contracts, provided that the right to terminate, liquidate or net such contract solely by reason of, or incidental to, the appointment of the FDIC as receiver (or the insolvency or financial condition of the covered financial company) may not occur until (a) 5:00 pm on the business day following the date of the appointment of the receiver or (b) receipt of notice of transfer of the qualified financial contract. In addition, any payment or delivery obligations otherwise due from a party pursuant to the qualified financial contract shall be suspended from the time the FDIC is appointed as receiver until the earlier of (a) the time such party receives notice that such contract has been transferred or (b) 5:00 pm on the business day following the date of appointment of the FDIC as receiver. 27

28 C.Determination and Treatment of Claims 1.Claims Determination Process a.The process for determining claims by the FDIC as receiver is generally similar to the process contained in the FDIA. A proof of claim filing (bar) date is set on notice. The FDIC within a specified period thereafter provides notice to claimants of its determination whether a claim, as filed, is to be allowed or disallowed in whole or in part and the reasons for any disallowance, including any claim of security, preference, setoff or priority which is not proved to the FDIC’s satisfaction. b.If a claim is disallowed in whole or in part the creditor must bring an action (or continue an action pending prior to the appointment of the FDIC, as receiver) in the district or territorial court of the United States within which the principal place of business of the covered financial company is located within a prescribed period of time after notice of disallowance. Failure to bring such action within the prescribed period results in the disallowance becoming final with the claimant having no further rights or remedies with respect to the claim. c.The Dodd-Frank Act provides an alternate procedure for expedited determination of claims for any claimant that alleges that (i) it has a legally valid and enforceable or perfected security interest in property of a covered financial company, or control of any legally valid and enforceable security entitlement in respect of any asset held by the covered financial company and (ii) that irreparable injury will occur if the claims procedure is followed. In the case of disallowance of such claim, or portion thereof, by the FDIC, the claimant can file suit within a prescribed period to seek to have its claim allowed. 28

29 2.Payment of Claims A creditor of a covered financial company shall in no event receive less than the amount the creditor would receive had the company been liquidated under chapter 7 of the Bankruptcy Code, or, if applicable, SIPA proceeding. 3.Priority of Unsecured Claims Unsecured claims that are proven to the satisfaction of the FDIC have the following priority subject to specific exceptions (such as certain rights relating to setoff) a.administrative expenses of the FDIC, as receiver; b.any amounts owed to the U.S., unless the U.S. agrees or consents otherwise; c.wages, salaries or commissions, including vacation, severance, and sick leave pay earned by an individual (other than senior executives and directors of the covered financial company referred to in (g) below), but only to the extent of $11,725 for each individual (as indexed for inflation, by regulation of the FDIC) earned not later than 180 days before the date of appointment of the FDIC as receiver; 29

30 d.contributions owed to employee benefit plans arising from the services rendered not later than 180 days before the date of appointment of the FDIC as receiver, to the extent of the number of employees covered by each such plan, multiplied by $11,725 (as indexed for inflation, by regulation of the FDIC) less the aggregate amount paid to such employees under (c) above, plus the aggregate amount paid by the receivership on behalf of such employees to any other employee benefit plan; e.any other general or senior liability of the covered financial company (not the subject of (f), (g), or (h); f.any obligation subordinated to general creditors that is not listed in (g) or (h) below; g.any wages, salaries, or commissions including vacation, severance, or sick leave pay earned, owed to senior executives and directors of the covered financial company; h.any obligations to shareholders, members, general partners, limited partners, or other persons with interests in the equity of the covered financial company arising as a result of their status as shareholders, members, general partners, limited partners, or other persons with interests in the equity of the covered financial company. 30

31 4.Post-Receivership Financing Priority In the event that the FDIC, as receiver, is unable to obtain unsecured credit for the covered financial company from commercial sources, the FDIC may obtain credit or incur debt that will have priority over any or all administrative expenses of the receiver. 5.Treatment of Similarly Situated Creditors, Additional Payments and Recoupment Assessments As a general rule, similarly situated creditors are to be treated the same. However, the FDIC may take any action that does not comply with that rule if the FDIC determines that such action is necessary, including making “additional payments” to creditors (a) to maximize the value of assets of the covered financial company; (b) to initiate and continue operations essential to implementation of the receivership or any bridge financial company; (c) to maximize the present value return from the sale or other disposition of the assets of the covered financial company; or (d) to minimize the amount of any loss realized upon the sale or other disposition of the assets of the covered financial company. Claimants who benefit from additional payments are subject to recoupment assessments. The recoupment assessment is to recover on a cumulative basis, the difference between (a) the aggregate value the claimant received from the FDIC on a claim pursuant to Title II as the date the value was received and (b) the value the claimant was entitled to receive from the FDIC solely from the proceeds of the liquidation of the covered financial company under Title II. 31


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