FDIC Final Rule: Certain Orderly Liquidation Authority Provisions under Dodd-Frank Act

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Gavel.png FINAL RULE: This page contains final rulemakings related to the Orderly Liquidation Authority.
Dodd-Frank Timeline, Phase II Final Rule on Orderly Liquidation Provisions, FDIC
Proposal Date Final Rule Issued Effective Date
January 25, 2011 July 15, 2011 August 15, 2011
Dodd-Frank Timeline, Claims Process under Orderly Liquidation Authority Provisions, FDIC
Proposal Date Comment Deadline Final Rule Issue
March 23, 2011 May 23, 2011 August 15, 2011

On July 15, 2011, the FDIC issued a final rule that addresses comments on the January 25, 2011 Interim Final rule and the Phase II Orderly Liquidation rule. This rule includes provisions for:

  • the recoupment of compensation from senior executives and directors;
  • the power to avoid fraudulent or preferential transfers;
  • the priorities of expenses and unsecured claims; and
  • the administrative process for initial determination of claims.

The rule became effective August 15, 2011.

Background

On January 18, 2011, the FDIC issued an interim final rule on orderly liquidation, which explained how contingent claims and a process by which creditors may be favored over other creditors. On March 15, 2011, a notice of proposed rulemaking ("NPR") was issued which addressed the four provisions in the final rule, as highlighted above. For more background information, click HERE. The final rule addresses some of the concerns expressed in comments from the NPR, which can be viewed HERE.

Summary of the Final Rule

  • The final rule includes a two-year "claw-back" provision that allows for the recoupment of money, securities, and other compensation paid to a firm's executives and directors if it can prove "negligence." If "fraud" is proven, the two-year statute of limitations on the clawback is removed.
  • Determination by the FDIC of fraudulent or preferential transfers may be handled by the regulator in a manner similar to that of a bankruptcy proceeding.
  • If receiver's sale or transfer of an asset results in the loss of a "setoff" right to a creditor, such creditor would maintain a priority ahead of unsecured creditors.
  • The claims process will follow the process set up by Title II of the Dodd-Frank Act.[1]

Related Federal Register Documents:Interim Final Rule; Phase II; Claims Process

References

  1. FDIC Issues Final Rule under Orderly Liquidation Authority Provisions of Dodd-Frank Act. Katten Muchin Rosenman. Retrieved on January 24, 2012.

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