Judge rules Colonial BancGroup not responsible for bank's capital

By Caroline Salls

Pittsburgh, Sept. 1 - The Colonial BancGroup, Inc. did not make a commitment to maintain the capital of subsidiary Colonial Bank, contrary to Federal Deposit Insurance Corp. allegations, according to a ruling filed Tuesday by judge Dwight H. Williams Jr. of the U.S. Bankruptcy Court for the Middle District of Alabama.

According to the ruling, the FDIC filed a motion in November 2009 asking the court to order the company to immediately cure a $904.95 million deficit under an alleged commitment to maintain the capital of Colonial Bank or, in the alternative, to convert Colonial BancGroup's case to Chapter 7 bankruptcy.

The judge said the deficit is "far in excess of the debtor's ability to pay."

Colonial BancGroup claims it did not make a commitment to a Federal depository institutions regulatory agency to maintain the bank's capital.

Williams agreed with the company, saying Colonial BancGroup is only required to assist the bank under agreements called into question by the FDIC.

"The language does not dictate what financial and managerial resources the debtor must utilize," Williams said in his ruling. "Nor does it require the debtor to serve as a guarantor of the capital ratios or to pledge any assets to secure any capital deficiency.

"Most importantly, the language does not require the debtor to make a capital infusion, in any amount, in the bank."

Even if the company had agreed to maintain the bank's capital, the judge said that commitment would not have applied because the bank was no longer operating.

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.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.