Colonial BancGroup Inc. is aiming to tap cash sitting in a bank account currently in dispute with the Federal Deposit Insurance Corp.
The former parent of Colonial Bank is asking the U.S. Bankruptcy Court in Montgomery, Ala., for permission to tap an account with a $12.5 million balance to fund its operations and to pay the professionals shepherding it through Chapter 11 bankruptcy.
"Absent the use of the debtor's cash, the prosecution of this Chapter 11 case will, at least temporarily, come to a halt," Colonial said in court papers Tuesday. It said its bankruptcy proceeding has already been held up by the dispute with the FDIC over rights to more than $35 million in six bank accounts.
The FDIC said its role as Colonial Bank's receiver entitles it to the funds in the bank accounts, which it is seeking to set off against the claims of the failed bank against its insured deposits.