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| Economy |
| The Corporate 'Death Penalty' Becomes Law |
| 2010-09-07 |
| The Federal Deposit Insurance Corp. has the new power to take over and liquidate non-bank companies whose failure would jeopardize the financial system. Intended as a "third way" between bankruptcy and bailout, the FDIC's expanded authority is part of the 2,300-page Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law on July 21. It is a new regime for dissolving mega-companies, one with almost no judicial oversight and in which creditors' rights are few. The FDIC is tackling nearly 40 major rule makings to flesh out the details of the law. Taxpayers will not foot the bill if a company fails. Unlike Chapter 11 bankruptcy, which is designed to give companies a chance to reorganize and start anew, the FDIC process assumes control over all assets and operations. The goal is not to save the company. It is to liquidate it in an orderly way that maximizes its value. A threshold question is exactly what companies are covered by the FDIC's resolution authority and under what circumstances it can be invoked. Title II of the Dodd-Frank Act says the new provisions apply to bank holding companies, non-bank financial companies supervised by the Federal Reserve, and any other company or subsidiary "predominantly engaged" in financial activities, when such activities account for at least 85 percent of revenue. A company has no choice about the FDIC taking over as receiver. How the decision to do so is made varies slightly depending on whether the entity is a broker-dealer or an insurance company, but it comes down to a determination by the Treasury secretary in consultation with the president. A company can challenge the Treasury secretary's decision in the U.S. District Court for the District of Columbia -- but the court only has 24 hours to rule on the petition. If the court doesn't act, the government's action will be automatically considered approved. The district court's decision can be appealed -- but there's no stay pending a decision from the U.S. Court of Appeals for the District of Columbia Circuit. Even with an emergency appeal, the FDIC still would have been busy dissolving the company for possibly a month before the court would likely issue a decision. The lack of a judicial oversight may prove most contentious for creditors. In a bankruptcy, creditors often appear before a bankruptcy judge to argue the merits of their claims. Under FDIC resolution process, creditors lack such a forum. |
| Posted by: Anonymoose |
| #4 Kelo has nothing on this. |
| Posted by: CrazyFool 2010-09-07 23:55 |
| #3 Is it time...yet? |
| Posted by: Secret Asian Man 2010-09-07 23:24 |
| #2 And the markets would all be perfectly calm if the government decided to seize and dismantle, say, Citi, in 24 hours... |
| Posted by: Tom 2010-09-07 20:01 |
| #1 Even with an emergency appeal, the FDIC still would have been busy dissolving the company for possibly a month before the court would likely issue a decision. IANAL, but this statement looks funny. Courts have been known to issue emergency stay orders to stop similar proceedings in their tracks until the court has time to issue a decision. |
| Posted by: Anguper Hupomosing9418 2010-09-07 12:24 |