SW Legal studies in Business

Savings and Loan Capital Requirements Must Be Met Prior to Chapter 11
Description Appeals court held that before a savings and loan could enter Chapter 11 reorganization, its owners must provide the capital needed to eliminate its deficit. The owners promised federal regulators they would maintain the capital requirements; that commitment must be met before bankruptcy proceedings.
Topic Bankruptcy
Key Words Chapter 11; Receivership; Savings and Loan; Federal Supervision; Commitments
C A S E   S U M M A R Y
Facts Overland Financial was created to take over a savings and loan (S&L). That was approved by federal regulators on the condition that Overland would maintain the solvency of the S&L, which could require additional cash infusions. Years later, the federal government's Office of Thrift Supervision advised Overland that its capital requirements were not being met and further contributions were required. Overland refused. Thrift Supervision appointed the Resolution Trust Corporation as receiver of the S&L, which had a deficit of $4 million.. Overland filed a Chapter 11 bankruptcy. Thrift Supervision filed an unsecured priority proof of claim, alleging that Overland breached its capital maintenance commitment and sought $4 million, the deficit at the time of receivership. Overland objected and filed a proposed plan of reorganization.
Decision The bankruptcy provision requiring the trustee to cure all deficits arising under any commitment made by the debtor to maintain the capital of a savings and loan was enacted to prevent parties from using bankruptcy to evade commitments to maintain capital reserve requirements of federally insured depository institutions. Overland's commitment regarding capital was needed to obtain federal approval of the takeover of the S&L. Overland acknowledged its obligation to maintain the capital requirements. This commitment triggers a special cure provision in the bankruptcy code. The capital must be paid in before Chapter 11 reorganization can proceed.
Citation In re Overland Park Financial Corp., 236 F.3d 1246 (10th Cir., 2001)

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