Colonial BancGroup: FDIC seeks to convert bankruptcy case to Chapter 7

By Lisa Kerner

Charlotte, N.C., April 15 - The Federal Deposit Insurance Corp., receiver for Colonial BancGroup, Inc.'s Colonial Bank, asked the court to covert Colonial BancGroup's Chapter 11 case to Chapter 7, according to a Friday filing with the U.S. Bankruptcy Court for the Middle District of Alabama.

The company has paid about $7.4 million in fees during the pendency of its Chapter 11 case, and through February 2011 the debtor's cash position has decreased by approximately $3 million.

"It can only be concluded, based on the debtor's admission that there is no difference between the distribution scheme it proposes and a Chapter 7 liquidation, that the only reason this case remains in Chapter 11 is because the debtor seeks to retain control over the multiplicity of litigation it has commenced in this Court and the United States District Court for the Middle District of Alabama," the filing said.

Colonial BancGroup is the Montgomery, Ala.-based holding company for Colonial Bank. The company filed for bankruptcy on Aug. 25, 2009. Its Chapter 11 case number is 09-32303.

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