Title: PROPOSED RULE--Organization; Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations; Title V Conservators and Receivers--12 CFR Parts 611, 615, and 627
Issue Date: 06/03/1992
Agency: FCA
Federal Register Cite: 57 FR 23348
___________________________________________________________________________
FARM CREDIT ADMINISTRATION

12 CFR Parts 611, 615, and 627

RIN 3052-AA92

Organization; Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations; Title V Conservators and Receivers


ACTION: Proposed rule.

SUMMARY: The Farm Credit Administration (FCA), by the Farm Credit Administration Board (Board), proposes for public comment regulations governing conservatorships and receiverships for which the Farm Credit System Insurance Corporation (Insurance Corporation) is appointed as conservator or receiver. These regulations reflect amendments to the Farm Credit Act of 1971 by the Agricultural Credit Act of 1987 providing that, after January 5, 1993, the Insurance Corporation will be the exclusive entity appointed as conservator or receiver of a Farm Credit System institution (System institution or Farm Credit institution). Also proposed are amendments to existing conservatorship and receivership regulations, which would continue to apply in situations where the Insurance Corporation is not appointed as conservator or receiver.

DATES: Comments must be received by July 6, 1992.

ADDRESSES: Comments should be submitted in writing, in triplicate, to Jean Noonan, General Counsel, Farm Credit Administration, McLean, Virginia 22102-5090. Copies of all communications received will be available for examination by interested parties in the Office of General Counsel, Farm Credit Administration.

FOR FURTHER INFORMATION CONTACT:

Rebecca S. Orlich, Senior Attorney, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-4444, or

John J. Hays, FCA Examiner, Office of Examination, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION: The Agricultural Credit Act of 1987 (Pub. L. 100-233) (1987 Act) amended the Farm Credit Act of 1971 (Act) by adding a new title V which provided for the establishment of the Insurance Corporation. New sections 5.51(5) and 5.58(10) of the Act empower the Insurance Corporation to act as conservator or receiver. The 1987 Act also amended section 4.12(b) of the Act to provide that, after January 5, 1993, the Insurance Corporation will be the exclusive entity to be appointed by the FCA as conservator or receiver of a System institution.

In new part 627, the Board proposed to set forth the powers and duties of the Insurance Corporation when it acts as conservator or receiver of a System institution. Other conservators or receivers will continue to be governed by the existing provisions in part 611, subparts K, L, M, and N of the regulations, as amended by these proposals.

The Board's decision to promulgate separate regulations for conservatorships and receiverships for which the Insurance Corporation is the conservator or receiver is based on fundamental differences between the Insurance Corporation and other persons or entities that have previously been appointed to the position. Such other persons have been deemed to be acting as agents of the FCA in the performance of certain duties and responsibilities. Such agency status is unnecessary for the Insurance Corporation, which has the status of a Federal agency in its own right.

In addition, the Board believes that, with a government agency acting as receiver, it is not necessary for the institution to retain a Farm Credit charter. Consequently, the proposed regulations would provide for the Farm Credit charter of an institution to be canceled when the institution is placed in receivership and for the Insurance Corporation to succeed automatically to the rights, titles, and privileges of the institution upon its appointment as receiver. Once the charter is canceled, there would be no further assessments for the FCA's administrative expenses. Existing institutions in receivership for which the Insurance Corporation is not appointed as receiver would continue to retain their charters until the receivership is terminated.

Finally, the proposed regulations would provide the Insurance Corporation with flexibility to perform its receivership functions and would relieve the FCA of most of its supervisory involvement in future receiverships.

The Board notes that conforming amendments would be made to the reporting provisions in the existing regulations in order to maintain consistency of treatment of all receiverships in this important area. However, whereas there would no longer be a mandatory annual examination requirement for receiverships for which the Insurance Corporation acts as receiver, the existing receiverships would continue to be examined. It is the intention of the Board to rescind the existing conservatorship and receivership regulations in part 611 upon the termination of the last receivership or conservatorship for which the Insurance Corporation is not acting as conservator or receiver.

The Board further notes that there is a currently outstanding proposal to amend the definition of insolvency in 611.1156(b)(1). See 53 FR 43897, October 31, 1988. The Board has decided to take no action with respect to the proposed amendment or the existing regulation at this time other than to transfer the existing grounds for appointing a conservator or receiver to new part 627. A study of the definition of insolvency in the context of section 4.12 of the Act, along with the other grounds for appointment of a conservator or receiver, has been undertaken by the FCA in conjunction with its review of the capital adequacy regulations in part 615. Upon completion of this review, the Board will determine what action to take on the outstanding proposed definition.

The proposed regulations are discussed in more detail below. The most significant differences from existing regulations are described in the first part; the second part contains a section-by-section analysis and identifies the provisions of existing regulations that served as the basis for provisions in new part 627 pertaining to the Insurance Corporation. The Board notes that many of the powers and procedures set forth in the existing regulations are restated in the proposed regulations for the Insurance Corporation. However, whereas the existing regulations contain separate procedures for banks and associations, these two sets of procedures would be combined into one set of procedures in part 627 that would apply to all types of institutions in conservatorship or receivership. Any distinctions in the provisions to account for the structural differences among institutions, such as the treatment of insured obligations in the case of a bank receivership, as made where appropriate.

I. Significant New Provisions and Revisions to Existing Requirements

A. Cancellation of Charter

The Board believes that it would be appropriate to cancel the charter of a System institution at the time an institution is placed in receivership, rather than at the end of the receivership as is currently done, and to provide that the Insurance Corporation automatically succeeds to all the rights, titles, and privileges of the failed institution. Cancellation of the charter at the outset of a receivership routinely occurs when a commercial bank or savings association is liquidated and a government agency -- either the Resolution Trust Corporation (RTC) or the Federal Deposit Insurance Corporation (FDIC) -- is appointed as receiver.

B. Auditing and Reporting Requirements

Existing regulations 611.1168 and 611.1174 provide for an annual FCA examination of institutions in receivership and require the filing of call reports on a quarterly and an annual basis. It is the Board's view that, since the Insurance Corporation has its own independent statutory authority to examine institutions in receivership, FCA examinations are no longer necessary. Nonetheless, fairness dictates that the creditor, stockholders, and other interested parties be able to obtain periodic updates on the receivership. Therefore, the Board proposes to eliminate the annual examination requirement and replace it with a requirement that the receivership will be audited annually and that a report of the audit be made available to members of the public upon request.

The Board also proposes to eliminate the requirement for receiverships to file call reports with the FCA on a quarterly basis. Quarterly call reporting to the FCA and to stockholders may be unnecessarily expensive in the context of liquidating a receivership estate. Any significant financial information would be provided in the proposed annual report.

C. Priority of Claims

The priority of claims regulation has been revised to provide several new discretionary priorities for certain categories of claims. These provisions are modeled after the priority of claims regulations, originally adopted by the Federal Home Loan Bank Board and subsequently adopted by the FDIC, for savings association receiverships. Administrative expenses of the receiver would continue to have first priority.

The second, third, and fourth priorities are new. Second in priority would be administrative expenses of the institution incurred within 60 days of the commencement of the receivership, provided that the receiver determines the expenses to be reasonable and in the best interests of the receivership to pay. Such expenses would be limited to reimbursements to employees for business purposes and payments for the services of accountants, attorneys, appraisers, examiners, or management companies.

The third priority would be for claims for previously earned wages and salaries for employees that the receiver engages for a period of time after the commencement of the receivership, in order to help wind up the institution's affairs. The fourth priority would be for claims for wages and salaries of employees not engaged by the receiver to help wind up affairs. Payment of these two employee wage claim priorities would be within the discretion of the receiver, and three would be a limit of three thousand dollars ($3,000), which may be adjusted for inflation, on the amount that can be paid to a terminated employee not hired by the receiver.

The remaining categories of priority are identical to existing regulations.

The FCA Board believes that the new categories of priority payments, particularly the new authority pertaining to claims of the institution's employees, would give the receiver greater flexibility to carry out its receivership responsibilities more efficiently and effectively.

II. Section-by-Section Analysis

A. Part 627

The proposed regulations contain many of the provisions in existing subparts K, L, M, and N of part 611. The proposed regulations are in three subparts. Subpart A outlines general applicability of the new part and grounds for appointment or removal of conservators and receivers. Subpart B contains matters pertaining to receivers and receiverships, and subpart C contains matters pertaining to conservators and conservatorships.

Section 627.2700 -- General -- Applicability

Proposed 627.2700 would specify that the new part applies only to conservatorships and receiverships for which the Insurance Corporation is appointed as conservator or receiver. Existing conservatorships and receiverships would continue to be governed by applicable regulations in part 611.

Section 627.2705 -- Definitions

Proposed 627.2705 contains definitions applicable to the new part. Paragraph (b) defines "Farm Credit institution(s)" or "institution(s)" and includes associations as well as the entities included in the definition of "bank" in existing 611.1170(h). Paragraph (d) defines "Insurance Corporation" as the Farm Credit System Insurance Corporation. Paragraphs (c) and (e) specify that the references to the conservator in part 627 are references to the Insurance Corporation acting in such capacity.

Section 627.2710 [Reserved]

Proposed 627.2710 is reserved for existing 611.1156, which would be transferred to new party 627. Existing 611.1156 sets forth the grounds for FCA appointment of a conservator or receiver. The existing regulation is being transferred to part 627 in order to preserve the outstanding proposal to amend the definition of insolvency in 611.1156(b)(1). See 53 FR 43897, October 31, 1988.

Section 627.2715 -- Action for removal of conservator or receiver

Proposed 627.2715 is similar to existing 611.1158 and concerns actions that an institution's board may take to seek an order for the FCA Board to remove such conservator or receiver. If such order is granted, the cancellation of the institution's charter would be rescinded. The proposed regulation clarifies that this provision does not apply to voluntary liquidations.

Subpart B -- Receivers and Receiverships

Subpart B includes proposed regulations 627.2720 through 627.2765. These regulations pertain to receivers and receiverships and are a combination of the provisions in subpart L -- Liquidations of Associations and subpart M -- Liquidations of Banks of part 61.

Section 627.2720 -- Appointment of receiver

Proposed 627.2720 combines provisions of existing regulations 611.1160 and 611.1170, which pertain to the appointment of receivers for associations and banks, respectively. Provisions have been omitted pertaining to the role of an institution's board of directors in recommending a receiver for a voluntary liquidation and pertaining to termination of a receivership by the FCA Board. The paragraphs are reordered as appropriate. Paragraph (a) concerns the FCA Board approval over voluntary liquidations. The Board proposes to remove the requirement that the FCA consult with the district bank before placing an association in receivership.

Paragraph (b) combines 611.1160(b) and 611.1170(b) of the existing regulations. Paragraph (c) is proposed to be modified from existing 61.1160(e) and 61.1170(e) by omitting the agent relationship and the reference to the cancellation of the charter, removing the vesting of the receiver's responsibilities, and adding a provision that the Insurance Corporation shall be the sole entity to be appointed as conservator or receiver after January 5, 1993. As discussed in Part I above, the agent relationship between the Farm Credit Administration and the Insurance Corporation is not necessary. The vesting of the receivership responsibilities would be contained in other sections of the regulations, and the Board intends to rescind the charter of an institution in conjunction with appointing a receiver for the institution. Paragraph (d) combines existing 611.1160(c) and 611.1170(d) but omits the provision regarding the receiver's acceptance of the appointment, since the Insurance Corporation will be the only receiver the Farm Credit Administration Board may appoint.

Paragraph (e) is new and directs a district bank to take steps to minimize the adverse effect of an association's liquidation on borrowers whose loans are purchased by or transferred to another System institution. This provision is mandated by section 4.12(a) and (c) of the Act.

Paragraph (f) combines existing 611.1160(d) and 611.1170(c), omitting references to the suspension of directors and employees (which are covered elsewhere), and provides for cancellation of the charter upon the appointment of the receiver.

Section 627.2725 -- Powers and Duties of the Receiver

Proposed 627.2725 is similar to 611.1157(b), 611.1161, 611.1171 and also contains new provisions regarding and powers and duties of the receiver. Paragraph (a) outlines the general responsibilities of the receiver and incorporates new provisions that the receiver automatically succeeds to all rights, titles, powers and privileges of the institution with respect to the institution and assets; succeeds to the title to the books, records, and assets of any previous conservator or other legal custodian of such institution; and acts as the trustee of the receivership for the benefit of the creditors and stockholders of the institution. Paragraph (b) sets forth the specific powers with few modifications from existing 611.1161(a)-(s), which is the model for this paragraph.

In addition, paragraph (b)(10) empowers the receiver to hire agents, and paragraph (b)(18) omits a provision authorizing the receiver to take action in the name of the institution in receivership. Since the Insurance Corporation will succeed to the rights, titles, and privileges of the institution, it may take action in its own name on behalf of the receivership.

Section 627.2730 -- Preservation of Equity

Proposed 627.2730 combines 611.1162 and 611.1172. Paragraph (d) from 611.1172, which pertains to the authority of the Farm Credit System Financial Assistance Corporation (FAC) to purchase preferred stock, is omitted because the FAC will not have this authority after 1992.

Section 627.2735 -- Notice to Holders of Uninsured Accounts and Stockholders

Proposed 627.2735 combines certain provisions from existing 611.1163, 611.1166, and 611.1173, which require notices to be sent to holders of uninsured accounts and stockholders. Requirements for disclosure of information on borrowers' loans, including transfer and repayment, are omitted. Disclosure of such information could continue to be made by the receiver should the FCA or the receiver deems it to be necessary.

Section 627.2740 -- Creditors' Claims

Proposed 627.2740 combines existing 611.1164 and 611.1174 pertaining to creditors' claims. The provisions are similar to the existing regulations except that the receiver is not required to file a list of claims with the FCA. In addition, the provision in existing 611.1174(b) regarding claims of bondholders and holders of similar obligations has been omitted. In its place is a provision that, if it is deemed necessary or appropriate, such holders would make claims in accordance with procedures formulated by the Insurance Corporation, after consultation with the FCA.

Sections 627.2745, 627.2750, and 627.2752 -- Priority of Claims

Proposed 627.2745, 627.2750, and 627.2752 set forth the priorities of claims for associations, banks, and other Farm Credit institutions, respectively. The priorities of claims for associations and banks are similar to the existing provisions in 611.1167 and 611.1174, with additional new provisions, explained above in Part I, pertaining to claims for certain business expenses and employee wages and salaries. The provisions in 627.2752, which are new, provide priorities for System institutions other than banks and associations. The new provisions for other Farm Credit institutions are similar to the provisions for both associations and banks, as applicable.

Section 672.2755 -- Payment of Claims

Proposed 627.2755 combines provisions of existing 611.1167 and 611.1174 pertaining to the payment of claims, but omits references to purchase and assumption agreements that may be entered into by the receiver. Such action may be taken by the receiver pursuant to authorities granted in 627.2725.

Section 627.2760 -- Inventory, Audit, and Reports

Proposed 627.2760 combines certain provisions of existing 611.1168 and 611.1175 pertaining to inventory, audit, and reports of receivership activities. As discussed above, the Board has decided to eliminate mandatory annual examinations in situations where the Insurance Corporation is appointed receiver, and also to eliminate most reporting requirements for all receiverships. The Board proposes to require an annual audit of receiverships.

Section 627.2765 -- Final Discharge and Release of the Receiver

Proposed 627.2765 provides for the final discharge and release of the receiver. Provisions from existing 611.1169 and 611.1176 regarding the final report, the cancellation of the charter, examination requirements, storage of records, and approval of the receiver's accounts are omitted.

Subpart C -- Conservators and Conservatorships

Subpart C contains proposed 627.2770 through 627.2790 and sets forth regulations for conservators and conservatorships. These provisions are similar to those in subpart N of part 611. Certain conforming revisions are proposed that will be similar to the provisions in the receivership regulations for the Insurance Corporation. Provisions pertaining to the conservator's acceptance of the appointment, the status of the conservator as the FCA's agent, and the replacement of the conservator are omitted. Many of the supervisory provisions in existing subpart N of part 611 would not be retained in part 627.

Section 627.2770 -- Conservators

Proposed 627.2770 sets forth general information about conservators and is similar to the relevant provisions of 627.1157(a)

Section 627.2775 -- Appointment of a Conservator

Proposed 627.2775 is similar to existing 611.1180. References to the conservator as agent of the FCA and replacement of the conservator are omitted.

Section 627.2780 -- Powers and Duties of Conservators

Proposed 627.2780 is similar to existing 611.1181 and sets forth the powers and duties of conservators, except that prior FCA approval requirements have been omitted.

Section 627.2785 -- Inventory, Examination, Audit, and Reports to Stockholders

Proposed 627.2785 is similar to existing 611.1182 pertaining to inventory, examination, audit and reports to stockholders, except that the proposed regulation does not specify the format by which the inventory is reported. An audit by a certified public accountant would be mandatory rather than optional, and the FCA prior approval of the accountant is omitted.

Section 627.2790 -- Final Discharge and Release of the Conservator.

Proposed 627.2790 is similar to existing 611.1183(a) pertaining to the final discharge and release of the conservator. The conservator would be required to provide a final report on its activities at the end of the conservatorship. The Board has determined that it is unnecessary to require by regulation an examination or audit to be performed at the end of a conservatorship, since the FCA Board is empowered by section 5.19(a) of the Act to determine when to require an examination of any institution.

B. Part 611

Section 611.1155 -- General

Section 611.1155 is proposed to be amended to specify that subparts K, L, M, and N will apply only to conservatorships and receiverships for which the Insurance Corporation is not appointed as conservator or receiver.

Section 611.1156 -- Grounds for Appointment of Conservators and Receivers

Existing 611.1156, which sets forth the grounds for the appointment of a conservator or receiver of a Farm Credit institution, is proposed to be redesignated as 627.2710 and amended to eliminate references in paragraph (a) to the Farm Credit System Assistance Board, which ceases existence at the end of 1992. It is anticipated that the final receivership regulations will not be adopted and become effective until 1993, at which time section 4.12(b) of the Farm Credit Act mandates that the Insurance Corporation will be the exclusive entity to be appointed as conservator or receiver of a Farm Credit institution. Since proposed part 627 would contain all provisions applicable to the appointment of the Insurance Corporation, it will be unnecessary to retain this regulation in part 611. Therefore, these regulations are proposed to be transferred to part 627. The currently outstanding proposal to amend 611.1156(b)(1), as discussed above, would then be considered to be a proposal to amend 627.2710(b)(1).

Sections 611.1168 and 611.1175 -- Inventory, Audit, and Reports to Stockholders

The Board proposes to amend these sections to remove existing reporting requirements for banks and associations in receivership, and to require the receiverships to make annual reports that will be available to the stockholders or interested members of the public. As discussed in Part I above, the reporting requirements would be revised to be the same as for receiverships governed by new part 627, but the existing examination requirements would not be revised for receiverships governed by part 611.

C. Part 615

The reference to existing 611.1156 in 615.5216 would be revised to reflect the proposed rule

List of Subjects

12 CFR Part 611

Agriculture, Banks, banking, Rural areas.

12 CFR Part 615

Accounting, Agriculture, Banks, banking, Government securities, Investments, Rural areas.

12 CFR Part 627

Agriculture, Banks, Banking, Claims, Rural areas.

For the reasons set forth in the preamble, parts 627, 611, and 615 of chapter VI, title 12 of the Code of Federal Regulations are proposed to be added and amended, respectively, as follows:

1. A new part 627 is added to read as follows:

PART 627 -- TITLE V CONSERVATORS AND RECEIVERS

Subpart A -- General

Sec.

627.2700 General -- applicability.

627.2705 Definitions.

627.2710 [Reserved]

627.2715 Action for removal of conservator or receiver.

Subpart B -- Receivers and Receiverships

627.2720 Appointment of receiver.

627.2725 Powers and duties of the receiver.

627.2730 Preservation of equity.

627.2735 Notice to holders of uninsured accounts and stockholders.

627.2740 Creditors' claims.

627.2745 Priority of claims -- associations.

627.2750 Priority of claims -- banks.

627.2752 Priority of claims -- other Farm Credit institutions.

627.2755 Payment of claims.

627.2760 Inventory, audit, and reports.

627.2765 Final discharge and release of the receiver.

Subpart C -- Conservators and Conservatorships

627.2770 Conservators.

627.2775 Appointment of a conservator.

627.2780 Powers and duties of conservators.

627.2785 Inventory, examination, audit, and reports to stockholders.

627.2790 Final discharge and release of the conservator.

Authority: Secs. 4.2, 5.9, 5.10, 5.17, 5.51, 5.58 of the Farm Credit Act; 12 U.S.C. 2183, 2243, 2244, 2252, 2277a, 2277a-7.

Subpart A -- General

627.2700 General -- applicability.

The provisions of this part shall apply to conservatorships and receiverships of Farm Credit institutions for which the Farm Credit System Insurance Corporation is appointed as conservator or receiver.

627.2705 Definitions.

For purposes of this part the following definitions apply:

(a) Act means the Farm Credit Act of 1971, as amended.

(b) Farm Credit institution(s) or institution(s) means all associations, banks, service corporations chartered under title IV of the Act, the Federal Agricultural Mortgage Corporation, the Federal Farm Credit Banks Funding Corporation, and the Farm Credit System Financial Assistance Corporation.

(c) Conservator means the Farm Credit System Insurance Corporation acting in its capacity as conservator.

(d) Insurance Corporation means the Farm Credit System Insurance Corporation.

(e) Receiver means the Insurance Corporation acting in its capacity as receiver.

627.2710 [Reserved]

627.2715 Action for removal of conservator or receiver.

Upon the appointment of a conservator or receiver for a Farm Credit institution by the Farm Credit Administration Board pursuant to 627.2710 of this part, the institution may, within 30 days of such appointment, bring an action in the United States District Court for the judicial district in which the home office of the institution is located, or in the United States District Court for the District of Columbia, for an order requiring the Farm Credit Administration Board to remove such conservator or receiver and, if the charter has been canceled, to rescind the cancellation of the charter. Notwithstanding any other provision of subpart B or C of this part, the institution's board of directors is empowered to meet subsequent to such appointment and authorize the filing of an action for removal. An action for removal may be authorized only by such institution's board of directors.

Subpart B -- Receivers and Receiverships

627.2720 Appointment of receiver.

(a) The board of directors of a Farm Credit institution, by the adoption of an appropriate resolution, may vote to liquidate the institution, and upon approval of the resolution by the Farm Credit Administration Board, the Board may, by order, place the Farm Credit institution in receivership.

(b) The Farm Credit Administration Board may, in its discretion, appoint ex parte and without notice a receiver for any Farm Credit institution in accordance with the grounds for appointment set forth in 627.2710 of this part.

(c) The voluntary or involuntary liquidation of a Farm Credit institution shall be conducted by the receiver. After January 5, 1993, the Insurance Corporation shall be the sole entity to be appointed as receiver.

(d) Upon the appointment of the Insurance Corporation as receiver, the Chairman of the Farm Credit Administration Board shall immediately notify the institution, and its district bank in the case of an association, and shall publish a notice of the appointment in the Federal Register.

(e) In the case of the voluntary or involuntary liquidation of an association, the district bank shall institute appropriate measures to minimize the adverse effect of the liquidation on those borrowers whose loans are purchased by or otherwise transferred to another System institution.

(f) Upon the issuance of the order placing a Farm Credit institution into liquidation, the Farm Credit Administration Board shall cancel the institution's charter. All rights, privileges, and powers of the board of directors, officers, and employees of the institution shall be vested exclusively in the receiver.

627.2725 Powers and duties of the receiver.

(a) General. (1) Upon appointment as receiver, the receiver shall take possession of a Farm Credit institution pursuant to 12 U.S.C. 2183 and 627.2710 of this part in order to wind up the business operations of such institution, collect the debts owed to the institution, liquidate its property and assets, pay its creditors, and distribute the remaining proceeds to stockholders. The receiver shall exercise all powers necessary to the efficient termination of an institution's operation as provided for in this subpart.

(2) Upon its appointment as receiver, the receiver automatically succeeds to --

(i) All rights, titles, powers and privileges of the institution and of any stockholder, officer, or director of such institution with respect to the institution and the assets of the institution; and

(ii) Title to the books, records, and assets of any previous conservator or other legal custodian of such institution.

(3) The receiver of a Farm Credit institution serves as the trustee of the receivership estate and conducts its operations for the benefit of the creditors and stockholders of the institution.

(b) Specific powers. The receiver may:

(1) Exercise all powers as are conferred upon the officers and directors of the institution under law and the former charter, articles, and bylaws of the institution.

(2) Take any action the receiver considers appropriate or expedient to carry on the business of the institution during the process of liquidating its assets and winding up its affairs.

(3) Extend credit to existing borrowers as necessary to honor existing commitments and to effectuate the purposes of the receivership.

(4) Borrow such sums as necessary to effectuate the purposes of the receivership.

(5) Pay any sum the receiver deems necessary or advisable to preserve, conserve, or protect the institution's assets or property or rehabilitate or improve such property and assets.

(6) Pay any sum the receiver deems necessary or advisable to preserve, conserve, or protect any asset or property on which the institution has a lien or in which the institution has a financial or property interest, and pay off and discharge any liens, claims, or charges of any nature against such property.

(7) Investigate any matter related to the conduct of the business of the institution, including, but not limited to, any claim of the institution against any individual or entity, and institute appropriate legal or other proceedings to prosecute such claims.

(8) Institute, prosecute, maintain, defend, intervene, and otherwise participate in any legal proceeding by or against the institution or in which the institution or its creditors or members have any interest, and represent in every way the institution, its members, and creditors.

(9) Employ attorneys, accountants, appraisers, and other professionals to give advice and assistance to the receivership generally or on particular matters, and pay their retainers, compensation, and expenses, including litigation costs.

(10) Hire any agents or employees necessary for proper administration of the receivership.

(11) Execute, acknowledge, and deliver, in person or through a general or specific delegation, any instrument necessary for any authorized purpose, and any instrument executed under this paragraph shall be valid and effective as if it had been executed by the institution's officers by authority of its board of directors.

(12) Sell for cash or otherwise any mortgage, deed of trust, chose in action, note contract, judgment or decree, stock, or debt owed to the institution, or any property (real or personal, tangible or intangible).

(13) Purchase or lease office space, automobiles, furniture, equipment, and supplies, and purchase insurance, professional, and technical services necessary for the conduct of the receivership.

(14) Release any assets or property of any nature, regardless of whether the subject of pending litigation, and repudiate, with cause, any lease or executory contract the receiver considers burdensome.

(15) Settle, release, or obtain release of, for cash or other consideration, claims and demands against or in favor of the institution or receiver.

(16) Pay out of the assets of the institution, all expenses of the receivership and all costs of carrying out or exercising the rights, powers, privileges, and duties as receiver.

(17) Pay out of the assets of the institution all approved claims of indebtedness in accordance with priorities established in this subpart.

(18) Take all actions and have such rights, powers, and privileges as are necessary and incident to the exercise of any specific power.

(19) Take such actions, and have such additional rights, powers, privileges, immunities, and duties as the Farm Credit Administration Board authorizes by order or by amendment of any order or by regulation.

(c) The receiver of a bank is also empowered to pay claims of holders of notes, bonds, debentures, or other obligations issued by the bank under 12 U.S.C. 2153 (c) or (d) in accordance with procedure specified by the Insurance Corporation pursuant to 627.2740(d) of this part.

627.2730 Preservation of equity.

(a) Except as provided for upon final distribution of the assets of the institution, no capital stock, participation certificates, equity reserves, or other allocated equities of an institution in receivership shall be issued, allocated, retired, sold, distributed, transferred, assigned, or applied against any indebtedness of the owners of such equities.

(b) Immediately upon the adoption of a resolution by its board of directors to liquidate voluntarily the institution, the capital stock, participation certificates, equity reserves, and allocated equities of the institution shall not be issued, allocated, retired, sold, distributed, transferred, assigned, or applied against any indebtedness of the owners of such equities until such time as the stockholders of the institution or the Farm Credit Administration Board disapproves such resolution. In the event the resolution is approved by the stockholders of the institution and the Farm Credit Administration Board, and the institution is placed in receivership, the provisions of paragraph (a) of this section shall govern further disposition of the equities of the institution.

(c) Notwithstanding paragraphs (a) and (b) of this section, eligible borrower stock shall be retired in accordance with section 4.9A of the Act.

627.2735 Notice to holders of uninsured accounts and stockholders.

(a) Upon placing an institution in liquidation, the receiver shall immediately notify every borrower who has an uninsured account (voluntary or involuntary) that the funds ceased earning interest when the receivership was instituted and will be applied against the outstanding indebtedness of any loans of such borrower unless, within 15 days of such notice, the borrower directs the receiver to otherwise apply such funds in the manner provided for in existing loan documents.

(b) As soon as practicable after the receiver takes possession of the institution, the receiver shall notify, by first class mail, each holder of stock and participation certificates of the following matters:

(1) The number of shares such holder owns;

(2) That the stock and other equities of the institution may not be retired or transferred until the liquidation is completed, whereupon the receiver will distribute a liquidating dividend, if any, to the owners of such equities; and

(3) Such other matters as the receiver or the Farm Credit Administration deems necessary.

627.2740 Creditors' claims.

(a) The receiver shall publish promptly a notice to creditors to present their claims against the institution, with proof thereof, to the receiver by a date specified in the notice, which shall be not less than 90 calendar days after the first publication. The notice shall be republished approximately 30 days and 60 days, respectively, after the first publication. The receiver shall promptly send, by first class mail, a similar notice to any creditor shown on the institution's books at the creditor's last address appearing thereon. Claims filed after the specified date shall be disallowed, except as the receiver may approve them for full or partial payment from the institution's assets remaining undistributed at the time of approval.

(b) The receiver shall allow any claim that is timely received and proved to the receiver's satisfaction. The receiver may disallow in whole or in part any creditor's claim or claim of security, preference, or priority which is not proved to the receiver's satisfaction or is not timely received and shall notify the claimant of the disallowance and reason therefore. Sending the notice of disallowance by first class mail to the claimant's address appearing on the proof of claim shall be sufficient notice. The disallowance shall be final, unless, within 30 days after the notice of disallowance is mailed, the claimant files a written request for payment regardless of the disallowance. The receiver shall reconsider any claim upon the timely request of the claimant and may approve or disapprove such claim in whole or in part.

(c) Creditors' claims that are allowed shall be paid by the receiver from time to time, to the extent funds are available therefore and in accordance with the priorities established in this subpart and in such manner and amounts as the receiver deems appropriate. In the event the institution has a claim against a creditor of the institution, the receiver shall offset the amount of such claim against the claim asserted by such creditor.

(d) The claims of holders of notes, bonds, debentures, or other obligations issued by a bank under 12 U.S.C. 2153 (c) or (d) shall be made, if deemed necessary or appropriate, in accordance with procedures formulated by the Insurance Corporation. In the formulation of such procedures, the Insurance Corporation shall consult with the Farm Credit Administration.

627.2745 Priority of claims -- associations.

The following priority of claims shall apply to the distribution of the assets of an association in liquidation:

(a) All costs, expenses, and debts incurred by the receiver in connection with the administration of the receivership.

(b) Administrative expenses of the association, provided that such expenses were incurred within 60 days prior to the receiver's taking possession, and that such expenses shall be limited to reasonable expenses incurred for services actually provided by accountants, attorneys, appraisers, examiners, or management companies, or reasonable expenses incurred by employees which were authorized and reimbursable under a preexisting expense reimbursement policy, that, in the opinion of the receiver, are of benefit to the receivership, and shall not include wages or salaries of employees of the association.

(c) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the appointment of the receiver by an employee of the association whom the receiver determines it is in the best interest of the receivership to engage or retain for a reasonable period of time.

(d) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the appointment of the receiver, up to a maximum of three thousand dollars ($3,000) per person as adjusted for inflation, by an employee of the association not engaged or retained by the receiver. The adjustment for inflation shall be the percentage by which the Consumer Price Index (as prepared by the Department of Labor) for the calendar year preceding the appointment of the receiver exceeds the Consumer Price Index for the calendar year 1992.

(e) All claims for taxes.

(f) All claims of creditors, including the district bank, which are secured by assets or equities of the association in accordance with applicable Federal or State law.

(g) All claims of the district bank other than those provided for in paragraph (f) of this section, based on the financing agreement between the association and the bank, including interest accrued before and after the appointment of the receiver, minus any setoff for stock or other equity of the district bank owned by the association made in accordance with this paragraph or paragraph (f) of this section. Prior to making such setoff, the district bank must obtain the approval of the Farm Credit Administration Board for the retirement of such equities.

(h) All claims of general creditors.

627.2750 Priority of claims -- banks.

The following priority of claims shall apply to the distribution of the assets of a bank in liquidation:

(a) All costs, expenses, and debts incurred by the receiver in connection with the administration of the receivership.

(b) Administrative expenses of the bank, provided that such expenses were incurred within 60 days prior to the receiver's taking possession, and that such expenses shall be limited to reasonable expenses incurred for services actually provided by accountants, attorneys, appraisers, examiners, or management companies, or reasonable expenses incurred by employees which were authorized and reimbursable under a preexisting expense reimbursement policy, that, in the opinion of the receiver, are of benefit to the receivership, and shall not include wages or salaries of employees of the bank.

(c) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the appointment of the receiver by an employee of the bank whom the receiver determines it is in the best interest of the receivership to engage or retain for a reasonable period of time.

(d) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the appointment of the receiver, up to a maximum of three thousand dollars ($3,000) per person as adjusted for inflation, by an employee of the bank not engaged or retained by the receiver. The adjustment for inflation shall be the percentage by which the Consumer Price Index (as prepared by the Department of Labor) for the calendar year preceding the appointment of the receiver exceeds the Consumer Price Index for the calendar year 1992.

(e) All claims for taxes.

(f) All claims of creditors which are secured by specific assets or equities of the bank, with priority of conflicting claims of creditors within this same class to be determined in accordance with priorities of applicable Federal or State Law.

(g) All claims of holders of bonds issued by the bank individually to the extent such are collateralized in accordance with 12 U.S.C. 2154.

(h) All claims of holders of consolidated and Systemwide bonds and claims of the other Farm Credit banks arising from their payments pursuant to 12 U.S.C. 2155.

(i) All claims of general creditors.

627.2752 Priority of claims -- other Farm Credit institutions.

The following priority of claims shall apply to the distribution of the assets of an institution, other than a bank or association, in liquidation:

(a) All costs, expenses, and debts incurred by the receiver in connection with the administration of the receivership.

(b) Administrative expenses of the institution, provided that such expenses were incurred within 60 days prior to the receiver's taking possession, and that such expenses shall be limited to reasonable expenses incurred for services actually provided by accountants, attorneys, appraisers, examiners, or management companies, or reasonable expenses incurred by employees which were authorized and reimbursable under a preexisting expense reimbursement policy, that, in the opinion of the receiver, are of benefit to the receivership, and shall not include wages or salaries of employees of the institution.

(c) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the appointment of the receiver by an employee of the institution whom the receiver determines it is in the best interest of the receivership to engage or retain for a reasonable period of time.

(d) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the appointment of the receiver, up to a maximum of three thousand dollars ($3,000) per person as adjusted for inflation, by an employee of the institution not engaged or retained by the receiver. The adjustment for inflation shall be the percentage by which the Consumer Price Index (as prepared by the Department of Labor) for the calendar year preceding the appointment of the receiver exceeds the Consumer Price Index for the calendar year 1992.

(e) All claims for taxes.

(f) All claims of creditors which are secured by specific assets or equities of the institution, with priority of conflicting claims of creditors within this same class to be determined in accordance with priorities of applicable Federal or State law.

(g) All claims of general creditors.

627.2755 Payment of claims.

(a) All claims of each class described in 627.2745, 627.2750, or 627.2752 of this part, respectively, shall be paid in full, or provisions shall be made for such payment, prior to the payment of any claim of a lesser priority. If there are insufficient funds to pay in full any class of claims described in 627.2745, distribution on such class shall be on a pro rata basis.

(b) Following the payment of all claims, the receiver shall distribute the remainder of the assets of the institution to the owners of stock, participation certificates, and other equities in accordance with the priorities for impairment set forth in the bylaws of the institution.

(c) Notwithstanding this section, eligible borrower stock shall be retired in accordance with section 4.9A of the Act.

627.2760 Inventory, audit, and reports.

(a) As soon as practicable after taking possession of an institution, the receiver shall make an inventory of the assets and liabilities as of the date possession was taken.

(b) The institution in receivership shall be audited on an annual basis by a certified public accountant selected by the receiver.

(c) With respect to each receivership, the receiver shall make an annual accounting or report, as appropriate, available upon request to any stockholder of the institution in receivership or any member of the public, with a copy provided to the Farm Credit Administration.

(d) Upon the final liquidation of the institution, the receiver shall send to each stockholder of record a report summarizing the disposition of the assets of the receivership and claims against the receivership.

627.2765 Final discharge and release of the receiver.

After the receiver has made a final distribution of the assets of the receivership, the receivership shall be terminated and the receiver shall be finally discharged and released.

Subpart C -- Conservators and Conservatorships

627.2770 Conservators.

(a) The Insurance Corporation shall be appointed as conservator by the Farm Credit Administration Board pursuant to section 4.12 of the Act and 627.2710 of this part to take possession of an institution in accordance with the terms of the appointment. Upon appointment, the conservator shall direct the institution's further operation until the Farm Credit Administration Board decides whether to place the institution into receivership. Upon correction or resolution of the problem or condition that provided the basis for the appointment and upon a determination by the Farm Credit Administration Board that the institution can be returned to normal operations, the Farm Credit Administration Board may turn the institution over to such management as the Farm Credit Administration Board may direct.

(b) A conservator shall exercise all powers necessary to continue the ongoing operations of the institution, to conserve and preserve the institution's assets and property, and otherwise protect the interests of the institution, its stockholders, and creditors as provided in this subpart.

627.2775 Appointment of a conservator.

(a) The Farm Credit Administration Board may appoint ex parte and without notice a conservator for any Farm Credit institution provided that one or more of the grounds for appointment as set forth in 627.2710 exist.

(b) Upon the appointment of a conservator, the Chairman of the Farm Credit Administration shall immediately notify the institution and, in the case of an association, the district bank, and notice of the appointment shall be published in the Federal Register. As soon as practicable after the conservator takes possession of the institution, the conservator shall notify, by first class mail, each holder of stock and participation certificates in the institution of the establishment of the conservatorship and shall describe the effect of the conservatorship on the institution's operations and on the borrower's loan and equity holdings.

(c) Upon the issuance of the order placing a Farm Credit institution in conservatorship, all rights, privileges, and powers of the members, board of director, officers, and employees of the institution are vested exclusively in the conservator.

(d) The conservator is responsible for conserving and preserving the assets of the institution and continuing the ongoing operations of the institution until the conservatorship is terminated by order of the Farm Credit Administration Board.

(e) The Board may, at any time, terminate the conservatorship and direct the conservator to turn over the institution's operations to such management as the Board may designate, in which event the provisions of this subpart shall no longer apply.

627.2780 Powers and duties of conservators.

(a) The conservator of an institution serves as the trustee of the institution and conducts its operations for the benefit of the creditors and stockholders of the institution.

(b) The conservator may, with respect to Farm Credit institutions, exercise the powers that a receiver of an institution may exercise under any of the provisions of 627.2725(b) of this part, except 627.2725(b)(2) and (b)(17). In interpreting those paragraphs for purposes of this section, the terms "conservator" and "conservatorship" shall be read for "receiver" and "receivership."

(c) The conservator may extend credit to new and existing borrowers as is necessary to the continuing operation of the institution and to effectuate the purposes of the conservatorship.

(d) The conservator may also take any other action the conservator considers appropriate or expedient to the continuing operation of the institution.

627.2785 Inventory, examination, audit, and reports to stockholders.

(a) As soon as practicable after taking possession of a Farm Credit institution the conservator shall make an inventory of the assets and liabilities of the institution as of the date possession was taken. One copy of the inventory shall be filed with the Farm Credit Administration.

(b) The institution in conservatorship shall be examined by the Farm Credit Administration in accordance with section 5.19 of the Act. The institution shall also be audited by a certified public accountant in accordance with part 621 of this chapter.

(c) Each institution in conservatorship shall prepare and file with the Farm Credit Administration financial reports in accordance with the requirements of part 621 of this chapter. The conservator of the institution shall provide the certification required in 621.12 of this chapter.

(d) Each institution in conservatorship shall prepare and issue published financial reports in accordance with provisions of part 620 of this chapter, and the certifications and signatures of the board of directors or management provided for in 620.2(b), 620.2(c), and 620.5m(2) of this chapter shall be provided by the conservator of the institution.

627.2790 Final discharge and release of the conservator.

At such time as the conservator shall be relieved of its conservatorship duties, the conservator shall file a report on the conservator's activities with the Farm Credit Administration. The conservator shall thereupon be completely and finally released.

PART 611 -- ORGANIZATION

2. The authority citation for part 611 is revised to read as follows:

Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15, 5.9, 5.10, 5.17, 7.0-7.13, 8.5(e) of the Farm Credit Act; 12 U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183, 2203, 2243, 2244, 2252, 2279a-2279f-1, 2279aa-5(e); secs. 411 and 412 of Pub. L. 100-233, 101 Stat. 1568, 1638.

Subpart K -- Appointment of Conservators and Receivers

611.1155 [Amended]

3. Section 611.1155 is amended by adding two sentences to the end of the existing text to read "Subparts K, L, M, and N of this part shall not apply to conservatorships or receiverships for which the Farm Credit System Insurance Corporation is appointed as conservator or receiver. Such conservatorships and receiverships shall be governed by part 627 of this chapter."

611.1156 [Redesignated]

4. Section 611.1156 is redesignated as 627.2710, and paragraph (a) of newly designated 627.2710 is revised to read as follows:

627.2710 Grounds for appointment of conservators and receivers.

(a) Upon a determination by the Farm Credit Administration Board of the existence of one or more of the factors set forth in paragraph (b) of this section, with respect to any bank, association, or other institution of the System, the Farm Credit Administration Board may, in its discretion, appoint a conservator or receiver for such institution. After January 5, 1993, the Insurance Corporation shall be the sole entity to be appointed as conservator or receiver.

* * * * *

611.1157 [Amended]

5. Section 611.1157 is amended by removing the reference " 611.1156 of this part" and adding in its place, the reference " 627.2710 of this chapter" in paragraphs (a) and (b).

Subpart L -- Liquidation of Associations

611.1160 [Amended]

6. Section 611.1160 is amended by removing the reference " 611.1156 of this part" and adding in its place, the reference " 627.2710 of this chapter" in paragraphs (b) and (g).

7. Section 611.1168 is amended by removing paragraphs (c), (d), and (e); by redesignating paragraph (f) as new paragraph (d); and by adding new paragraph (c) to read as follows:

611.1168 Inventory, examination, audit, and reports to stockholders.

* * * * *

(c) The receiver shall make an annual accounting or report, as appropriate, available upon request to any stockholder of the association in receivership or any member of the public.

* * * * *

Subpart M -- Liquidation of Banks

611.1170 [Amended]

8. Section 611.1170 is amended by removing the reference " 611.1156 of this part" and adding in its place, the reference " 627.2710 of this chapter" in paragraphs (b) and (g).

9. Section 611.1175 is amended by removing paragraphs (c), (d), and (e); by redesignating paragraph (f) as new paragraph (d); and by adding new paragraph (c) to read as follows:

611.1175 Inventory, examination, audit, and reports to stockholders.

* * * * *

(c) The receiver shall make an annual accounting or report, as appropriate, available upon request to any stockholder of the bank in receivership or any member of the public.

* * * * *

Subpart N -- Conservators and Conservatorships of Banks and Associations

611.1180 [Amended]

10. Section 611.1180 is amended by removing the reference " 611.1156" and adding in its place, the reference " 627.2710 of this chapter" in paragraph (a).

PART 615 -- FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, AND FUNDING OPERATIONS

11. The authority citation for part 615 is revised to read as follows:

Authority: Secs. 1.5, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.9, 4.14B, 4.25, 5.9, 5.17, 6.20, 6.26 of the Farm Credit Act; 12 U.S.C. 2013, 2019, 2020, 2073, 2074, 2075, 2076, 2093, 2122, 2128, 2132, 2146, 2154, 2160, 2202b, 2211, 2243, 2252, 2278b, 2278b-6; sec. 301(a) of Pub. L. 100-233, 101 Stat. 1568, 1608.

Subpart H -- Capital Adequacy

615.5216 [Amended]

12. Section 615.5216 is amended by removing the reference " 611.1156" and adding in its place, the reference " 627.2710 of this chapter" in paragraph (b).

Dated: May 27, 1992.

Curtis M. Anderson,

Secretary, Farm Credit Administration Board.

[FR Doc. 92-12821 Filed 6-2-92; 8:45 am]
BILLING CODE 6705-01-M