Colonial BancGroup creditors call for bankruptcy case conversion

By Caroline Salls

Pittsburgh, Dec. 8 - A group of creditors of The Colonial BancGroup, Inc. have asked the U.S. Bankruptcy Court for the Middle District of Alabama to convert the company's Chapter 11 bankruptcy case to Chapter 7, according to a Tuesday court filing.

The creditors said there is no way the company can meet the requirements of its capital maintenance agreement.

"This Chapter 11 petition only delays the inevitable liquidation of the company, which can most economically be handled by a Chapter 7 trustee," the creditors said in the motion.

In addition, the creditor group said "there is absolutely no chance at the debtor presenting a viable plan of reorganization."

According to the motion, the Colonial Bank receivership - the largest U.S. bank failure in 2009 - will cost the Federal Deposit Insurance Corp.'s Deposit Insurance Fund an estimated $2.8 billion.

The creditors said the company's bankruptcy case is "an attempt by a failed holding company to avoid its obligations to the underlying Colonial Bank creditors."

The creditors include Leah Junkins, Charles Malcolm Holland, III, Pamela Vitto, Harlan Parrish, Lee Martino, Lina Macki, Kenneth McConwell, Kenneth DeLisle, Joseph Royals, William Painter, Juliette Stapf, Lisa Free, Walter Hargrove, Patti Hill, Michelle Condon and Ronald Peck.

Colonial BancGroup is the Montgomery, Ala.-based holding company for Colonial Bank. The company filed for bankruptcy on Aug. 25. Its Chapter 11 case number is 09-32303.

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