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FDIC objects to Colonial plan; appeal, conversion motion pending
By Caroline Salls
Pittsburgh, April 26 - Colonial Bank's receiver the Federal Deposit Insurance Corp. objected to Colonial BancGroup, Inc.'s plan of liquidation, arguing that the company knows it is "in no position to move forward with any plan in this case," according to a Monday filing with the U.S. Bankruptcy Court for the Middle District of Alabama.
The FDIC said Colonial BancGroup cannot prove that the plan is feasible, in the best interest of creditors, complies with the Bankruptcy Code and was proposed in good faith.
According to the objection, Colonial BancGroup's Chapter 11 case will be converted if the FDIC wins an appeal regarding the company's obligation to cure deficits in its commitments to maintain the bank's capital.
"It is unnecessary and wasteful to confirm a plan that could fail at any time," the FDIC said in the objection.
Although the company claims that the plan's distribution scheme is no different than in Chapter 7, the FDIC said the plan includes various fees, costs and expenses against the estate that would not be incurred in a Chapter 7 liquidation.
In addition, the FDIC said the plan "attempts to create a gerrymandered class and an artificially impaired class for the sole purpose of manipulating voting on the plan."
Without this, the receiver said the company does not have an impaired accepting voting class.
"It is improper for the debtor to ask creditors to vote on a plan that is wholly contingent on certain pending litigation, the outcome of which the debtor cannot predict, and for which the debtor can make no assurances as to whether creditors will receive any distributions," the FDIC said in the objection.
The plan confirmation hearing is scheduled for May 11.
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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