Title II of the Dodd-Frank Act is intended to ensure that Federal authorities will have the ability to address financial distress at companies that could have a significant impact on U.S. financial stability if they were resolved under otherwise applicable law, generally Federal bankruptcy law.
Under the Act, Federal authorities will be able to place bank holding companies and other nonbank companies that are predominantly engaged in financial activities in receivership under Federal control, generally under the administration of the Federal Deposit Insurance Corporation.
This approach creates significant uncertainties for companies that due to their size or interconnectedness with other major financial companies could potentially become the subject of a Federal receivership action. These companies and their equity holders, creditors, borrowers, customers, vendors and counterparties will have no assurance in advance as to whether financial distress at the company will be dealt with in a Chapter 11 reorganization or a Chapter 7 liquidation under the Bankruptcy Code, or a Federal receivership under Title II.
The FDIC has begun the process of issuing regulations and opinions regarding how it will implement the Orderly Liquidation Authority, including how Title II authorities will be applied to securitizations.
Dechert attorneys are focused on helping clients deal with the issues raised by Title II for companies that may be subject to a Title II receivership and their investors and counterparties.