With a Chapter 11 plan confirmation hearing just weeks away, the Federal Deposit Insurance Corp. has called for Colonial BancGroup Inc.’s case to be converted to a Chapter 7 liquidation.
Bankruptcy professionals who have run up $7.3 million worth of fees are the only ones with anything to gain from allowing the case of Colonial Bank’s former parent company to remain in Chapter 11, lawyers for the FDIC said in a filing with the U.S. Bankruptcy Court in Montgomery, Ala.
Colonial Bank was taken over by regulators in 2009 in a move that sent its former parent to Chapter 11 protection. There is no chance of a rehabilitation for Colonial, which has no revenue or business prospects, according to the FDIC.
Instead, the Chapter 11 bankruptcy has become a platform for creditors who bought debt at a deep discount to pursue “an aggressive litigation strategy” aimed mostly at the FDIC, the agency complained.
Anything Colonial can do in Chapter 11, it can do faster and cheaper in Chapter 7, the FDIC contended.
Instead of a $525-per-hour Chapter 11 trustee, the company’s final affairs can be handled by a Chapter 7 trustee who gets paid a percentage of what he pays out to creditors, the agency said.
The FDIC’s motion to convert the Chapter 11 liquidation to a Chapter 7 liquidation is scheduled for hearing May 11, the day Colonial is due in court to seek confirmation of its Chapter 11 plan.