In a ruling that could have a significant impact on proceedings involving failed banks, the Federal Deposit Insurance Corp. was rebuffed in its attempt to assert a $905 million priority claim against the holding company of the failed Colonial Bank. On Sept. 1, federal bankruptcy Judge Dwight Williams Jr. of the Middle District of Alabama ruled that the bank’s bankrupt holding company, Colonial Bancgroup, could not be held liable for the shortfall in the bank’s assets. (Here’s an article about the ruling from Law360.)
The FDIC, represented by DLA Piper, had argued that a 2008 memorandum of understanding between the FDIC and the holding company, before the bank went under and a subsequent cease and desist order, created a commitment for the holding company to maintain the capital of the bank and to make up any deficiency. Colonial Bank’s deficiency of more than $900 million would exhaust all of the assets of Colonial Bancgroup, which is in Chapter 11.
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