Federal Agricultural Mortgage Corporation; Receivers and Conservators

FARM CREDIT ADMINISTRATION

12 CFR Part 650

RIN 3052-AB72

Federal Agricultural Mortgage Corporation; Receivers and

Conservators

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA or Agency), through the

FCA Board (Board), issues a final rule amending its regulations that

apply to the Federal Agricultural Mortgage Corporation (Farmer Mac or

Corporation) by adding a subpart to govern a receivership or

conservatorship. The final rule implements the receivership/

conservatorship authorities granted to the FCA by the Farm Credit

System Reform Act of 1996 (1996 Reform Act), Pub. L. 104-105 (Feb. 10,

1996) and by previous law.

DATES: This regulation shall become effective 30 days after publication

in the Federal Register during which either or both houses of Congress

are in session. Notice of the effective date will be published in the

Federal Register.

FOR FURTHER INFORMATION CONTACT: Larry W. Edwards, Director, Office of

Secondary Market Oversight, Farm Credit Administration, McLean, VA

22102-5090, (703) 883-4051, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION: The FCA proposed amendments to its

regulations governing Farmer Mac on February 24, 1997 (62 FR 8190). The

1996 Reform Act added section 8.41 to the Farm Credit Act of 1971, as

amended (Act), which grants the FCA the authority to place the

Corporation into receivership and expands the FCA's existing authority

to place the Corporation into conservatorship. This final rule

implements these statutory provisions.

Public Comments Received

The 30-day comment period expired on March 26, 1997. The FCA

received three comments, one from the Corporation, one from the Farm

Credit Council (FCC) on behalf of its member Farm Credit System (FCS)

institutions, and one from the United States Department of the Treasury

(Treasury). The following is a discussion of the comments and FCA's

responses.

A. Comments of the Farm Credit Council

Several of the FCC's comments were related to the slightly

different language used in the proposed regulation compared to FCA's

receivership and conservatorship regulations in part 627 of this

chapter, which was the model for the proposed rule. The FCC indicated

that for the most part, the differences were called to FCA's attention

to make sure that they were intentional. Proposed Sec. 650.56(b)(1)

provides that a receiver of Farmer Mac may exercise all powers as are

conferred upon the officers and directors of the Corporation under law

and the articles and bylaws of the Corporation, while

Sec. 627.2725(b)(1) refers to powers as conferred under law and the

``charter,'' articles, and bylaws of the institution. Although the FCA

may cancel the charter of the Corporation upon the appointment of a

receiver, it may also leave the charter in existence until the

conclusion of the receivership. In light of this, the FCA has included

the word ``charter'' in the final regulation. Another difference

between proposed part 650 and existing part 627 of this chapter noted

by the FCC is that proposed Sec. 650.59(b) begins with a reference to

the ``stock and other equities of the Corporation'' and concludes with

a reference to payment of a liquidating dividend to Farmer Mac's

``stockholders.'' Section 627.2735(b)(2) begins with a similar

reference to ``the stock and other equities'' of a liquidating

institution, but concludes with a reference to payment of a liquidating

dividend to the ``owners of such equities.'' The FCC believes that the

reference to owners of equities is broader than the simple reference to

stockholders in proposed Sec. 650.59(b). The FCA agrees, but notes

that, with respect to the Corporation, all equity owners are

stockholders. Therefore, the FCA makes no change to Sec. 650.59.

The FCC also indicated that the phrase ``or applied against any

indebtedness of the owners of such equities,'' which appears in the

first sentence of paragraph (b) of proposed Sec. 650.58, is not found

in paragraph (a) of that section although the same phrase appears in

both paragraphs (a) and (b) of Sec. 627.2730. The phrase was

intentionally omitted from proposed Sec. 650.58(a) because, unlike the

equity holders of Farm Credit institutions who in most cases are also

borrowers of the institutions, the equity holders of the Corporation

will most likely not be indebted to the Corporation. Also, the

restriction against retirement of equities in Sec. 650.58(b) is broad

enough to include applying stock against the indebtedness of the owner

of the stock should any stockholders be indebted to the Corporation. As

a result, the FCA omitted the phrase ``or applied against any

indebtedness of the owners of such equities'' from Sec. 650.58(b) of

the final regulation. The final comparison to part 627 of this chapter

that the FCC pointed out is that proposed Sec. 650.65(d), like its

counterpart Sec. 627.2775(c), provides that, upon the issuance of an

order placing the Corporation in conservatorship, all rights,

privileges, and powers of the ``members,'' board of directors,

officers, and employees of the Corporation are vested exclusively in

the conservator, and questioned whether the reference to ``members'' is

appropriate and relevant in the case of the Corporation. The FCA agrees

that the term ``members'' is not appropriate with reference to the

Corporation and removed that term in the final regulation.

The FCC commented that the word ``reasonable'' should be inserted

in proposed Sec. 650.56(b)(15) immediately before the phrase ``expenses

of the receivership.'' The FCC noted in this regard that proposed

Sec. 650.61(b), concerning priority of claims, expressly limits the

administrative expenses of the Corporation that may be afforded a

second priority to ``reasonable'' expenses incurred for services

actually provided by accountants, attorneys, appraisers, examiners, or

management companies, or ``reasonable'' expenses incurred by employees

that were authorized and reimbursable under a preexisting expense

reimbursement policy. In response, the FCA notes that the expenses

covered by Sec. 650.61(b) are expenses of the Corporation incurred

prior to the appointment of a receiver. All such expenses may not

necessarily be paid, as payment is limited to the receiver's judgment

that the services underlying the claims are of benefit to the

receivership. In contrast, Secs. 650.56(b)(15) and 650.61(a) relate

only to the authority of the receiver to pay the administrative

expenses of the receivership and all costs associated with carrying out

the powers and duties of a receiver. Furthermore, pursuant to

Sec. 650.56(a)(3), the receiver serves as the trustee of the

receivership estate and is required to conduct all of its operations,

whether incurring and paying administrative expenses or exercising any

other power conferred by the regulations, for the benefit of the

creditors and stockholders of the Corporation. Therefore, the FCA

[[Page 43634]]

believes that addition of the term ``reasonable'' to Sec. 650.56(b)(15)

is neither necessary nor appropriate and adopts Sec. 650.56(b)(15) as

proposed.

The FCC made two comments with regard to the preamble accompanying

the proposed and final regulations. The FCC asserted that during the

early drafting stages of what became section 8.41 of the Act,

consideration was given to authorizing a receiver of the Corporation to

borrow from the Farm Credit System Insurance Fund (Insurance Fund) to

meet the ongoing administrative expenses and liquidity needs of a

Corporation receivership. The authorization to borrow from the

Insurance Fund for such purposes was opposed by the FCS. The FCC states

that, although express borrowing authority was not adopted in section

8.41, FCS institutions would take comfort from FCA's insertion, into

the preamble to the final regulation, of a statement expressly

acknowledging that neither section 8.41 nor the final implementing

regulations authorize the Farm Credit System Insurance Corporation

(FCSIC) to loan moneys from the Insurance Fund to a Corporation

receiver or conservator for any reason whatsoever. In response, the FCA

acknowledges the comment and notes that FCSIC's authority to make use

of the Insurance Fund is governed by title V, part E of the Act, not

FCA regulations.

The other comment regarding the preamble to the proposed regulation

points out that the preamble states that the Corporation will be

required to comply with the applicable provisions of the Securities Act

of 1933 and the Securities Exchange Act of 1934, but proposed

Sec. 650.67(c), while expressly referring to the requirements of

Sec. 620.40 and part 621 of this chapter, makes no reference to the

securities acts. The FCC questioned whether the omission was

intentional or inadvertent. The FCA notes that Sec. 620.40 and part 621

of this chapter require the Corporation to comply with the securities

acts, and the statement in the preamble was merely a reference to the

requirement. Therefore, the FCA makes no change to Sec. 650.67.

B. Federal Agricultural Mortgage Corporation Comments

The Corporation commented on Sec. 650.50 of the proposed

regulation, which provides the grounds for which a receiver may be

appointed for the Corporation, and requested that the FCA amend

Sec. 650.50(a)(1) to clarify the definition of insolvency. Under the

proposed regulation, the Corporation would be considered insolvent if

its assets are less than its obligations to its creditors and others or

if the Corporation is unable to pay its debts in the ordinary course of

business. In relation to the first criterion, the Corporation

guarantees mortgage-backed securities that are sold to third-party

entities or individuals and then classified for accounting purposes as

``off-balance-sheet'' contingent liabilities of the guarantor. Because

there is no definition of the word ``obligations'' in the Act, in the

proposed regulations, or in the regulations contained in part 627 of

this chapter, the Corporation questions whether obligations would

include contingent liabilities, particularly guarantees. The

Corporation asserts that if obligations are interpreted to include the

contingent liabilities of the Corporation as a guarantor of securities

pursuant to its authorities under the Act, it could be deemed to be

insolvent today, which would not be a result intended by Congress or

reflective of the Corporation's true financial condition. The amendment

to Sec. 650.50 suggested by the Corporation would expressly exclude

contingent liabilities under guarantees issued by the Corporation.

Alternatively, the Corporation commented that if the FCA intended to

include contingent liabilities as obligations for the purposes of

determining insolvency, the value of the liabilities should be adjusted

based upon an assessment of the probability that the contingency of

default will occur and that the Corporation will be called upon to pay

under its guarantee and should be net of the reserves for losses of the

Corporation. Further, the assets of the Corporation should include the

value of any rights that the Corporation would have against any other

parties in the event that it is called upon to pay on a guarantee,

including, but not limited to, rights of subrogation or reimbursement

from a primary obligor. The Corporation provided suggested regulatory

language to implement the two alternatives.

The FCA does not believe that contingent liabilities of the

Corporation as a guarantor of securities pursuant to its authorities

under the Act would ordinarily be considered as obligations for

purposes of determining the Corporation's solvency under

Sec. 650.50(a)(1)(i). A loss contingency related to such guarantees

would affect the determination of solvency (and would likely be

recorded in the Corporation's financial statements) if a loss were

probable and could be reasonably estimated. Moreover, if a loss

contingency were both probable and could be reasonably estimated, the

amount of such contingency that would be included in the determination

of solvency would be based on an analysis of the circumstances and

would not necessarily be the amount of the guarantee itself. The

treatment of contingent liabilities for the purposes of

Sec. 650.50(a)(1)(i) is consistent with the treatment of contingent

liabilities under Generally Accepted Accounting Principles,

specifically, Statement of Financial Accounting Standards No. 5,

Accounting for Contingencies (SFAS No. 5). SFAS No. 5 requires that an

estimated loss from a loss contingency be recorded in the financial

statements if it is both probable that a liability has been incurred at

the date of the financial statements and the amount of the loss can be

reasonably estimated. If a loss contingency is not recorded in the

financial statements because one or both of the above criteria are not

met, disclosure of the loss contingency may or may not be required

depending on the likelihood that a loss will be incurred. Disclosure of

contingencies in such circumstances, however, is made in management's

discussion and analysis and the contingencies are not recorded as

liabilities in the financial statements.

Because the FCA generally would not consider the Corporation's

contingent guarantee obligations to be included in the calculation of

insolvency unless a liability related to such guarantees was probable

and could be reasonably estimated, the FCA has not amended

Sec. 650.50(a)(1)(i) in the manner suggested by the commenter. A

blanket exclusion of such obligations would not be appropriate because

it could serve to confuse rather than clarify the requirements of the

regulation. Further, the FCA believes that it is unlikely that

investors would mistakenly conclude that all of the Corporation's

contingent guarantee obligations would be included in the FCA's

calculation of insolvency because the treatment of contingent

liabilities is a generally widespread and well-known concept. As a

final note, although the FCA generally would not include the amount of

the contingent guarantee obligations in the calculation of insolvency

for the purpose of these regulations, the Corporation's general ability

to meet its contingent guarantee obligations are considered by the FCA

when making any determination concerning the safety and soundness of

the Corporation.

The Corporation also commented regarding Sec. 650.60(b) of the

proposed regulation, which authorizes a receiver of the Corporation to

allow any claim that is timely received and proved to the receiver's

satisfaction. The receiver also has the power to disallow claims in

[[Page 43635]]

whole or in part if not proved to the receiver's satisfaction. The

disallowance is final unless, within 30 days, a claimant files a

written request for payment regardless of the disallowance. Any such

request is reconsidered by the receiver, who may approve or disapprove

the claim in whole or in part. The Corporation requested that the FCA

amend Sec. 650.60 to provide that the FCA (through an official of the

FCA who did not participate in the initial disallowance of the claim)

would reconsider a disallowed claim upon the request of a claimant in

order to ensure that a disallowed claim would be reviewed by an entity

other than the person who initially disallowed the claim. In addition,

the Corporation asserts that such an amendment would ultimately make

decisions regarding the allowance of claims reviewable under the

provisions of the Administrative Procedure Act (APA), 5 U.S.C. 500 et

seq., with all of its procedural safeguards, including the availability

of judicial review. The Corporation contends that it is important for

investors and others who do business with it to know that, in the

unlikely event that a receiver were to be appointed, procedures

regarding the recognition of their claims would be fair, and any

disallowance of their claims would be subject to review by the FCA.

The FCA does not believe it is appropriate for it to review claims

disallowed by the receiver and has not amended Sec. 650.60. Unless the

FCA, pursuant to section 8.41(c) of the Act, is the receiver of the

Corporation, the FCA will ordinarily leave administrative decisions to

the judgment of the receiver. FCA's regulations under part 627 of this

chapter do not provide for the Agency's review of claim denial

decisions, and the FCA does not believe it is appropriate to afford

different treatment to the creditors of the Corporation. Further, these

regulations do not preclude any other avenues of review that may be

available to a claim holder.

C. Treasury Comments

In the preamble discussion accompanying proposed Sec. 650.56(b),

the FCA noted that generally, a receiver or conservator of the

Corporation would have all of the rights and powers that the

Corporation had prior to the appointment of the receiver and requested

comment on whether there should be any limits imposed on these powers.

The Treasury commented that because the purpose of a receivership would

be to wind up the Corporation's affairs, the receiver should not be

conducting new business, such as issuing guarantees, or expanding the

Corporation's debt obligations. The power of a receiver to exercise all

powers that are conferred upon the Corporation is not intended to allow

the receiver to search out or engage in new business opportunities. The

power of the receiver to issue guarantees, debt obligations, or any

other authority of the Corporation is designed to enable the receiver

to conclude any transactions that were in progress when the receiver

was appointed or take other similar actions if such actions are in the

best interest of the receivership. Restricting the receiver's powers to

less than those of the Corporation may preclude the receiver from

acting in the best interest of the receivership. Therefore, the FCA is

making no change as a result of this comment.

D. Section 650.61--Priority of Claims

The Corporation, the FCC, and the Treasury commented with regard to

Sec. 650.61, which establishes the priority for payment of claims

against the Corporation in receivership. The Corporation commented that

proposed Sec. 650.61 did not explicitly provide a priority for claims

of holders of securities guaranteed by the Corporation (guaranteed

securities). Further, the Corporation asserts that because investors in

guaranteed securities rely in part on the right of Farmer Mac to sell

obligations to the Secretary of the Treasury (12 U.S.C. 2279aa-13), any

inference in the regulations that the claims of holders would not take

precedence over the claims of general creditors could create

uncertainty with respect to the Corporation's guarantee and adversely

affect the market for, and pricing of, its guaranteed securities. The

Corporation recommended that the FCA amend Sec. 650.61 to provide for

payment of claims of holders of guaranteed securities prior to the

payment of general, unsecured creditors.

The FCA has not adopted this suggestion because the Act does not

provide a priority in liquidation for holders of guaranteed securities

over other creditors of the Corporation. In addition, holders of

guaranteed securities already have significant protection. They have

direct access to the assets of the specific pool securing their

securities as well as the guarantee of the Corporation should the

assets backing the pool not be sufficient. Further, the Corporation has

borrowing authority from Treasury to help enable it to fulfill

guarantees.

In the preamble to the proposed regulation, the FCA stated that it

was considering whether to provide a priority over other creditors for

obligations issued to the Treasury and requested comment on the issue.

The FCC commented that the obligations issued to the Treasury should

have a priority over other creditors only if one is provided by

statute. The Corporation commented that because the statute does not

provide a priority for obligations issued to the Treasury, no such

priority should be provided by regulation. Further, the Corporation

asserted that giving a priority position for the Treasury over other

unsecured general creditors of the Corporation could adversely affect

its dealings with vendors who would be general creditors in the

unlikely event of a receivership. The Treasury requested that the

regulations provide a priority over unsecured general creditors for any

unsecured Farmer Mac obligations issued to the Treasury.

The FCA believes that any priority afforded to the Corporation's

obligations should be determined by statute and the terms of the

obligations. The FCA notes that other statutes may provide some

protection to the Treasury, but the Act does not provide a priority in

liquidation for obligations issued to the Treasury. Therefore, the FCA

has not included such a priority in Sec. 650.61. Obligations issued to

the Secretary of the Treasury will be paid in the class of secured or

unsecured creditors, depending on the nature of the obligations.

Other than the changes previously noted to Secs. 650.56, 650.58,

and 650.65, and minor editorial changes, the FCA adopts the amendments

to part 650 as proposed.

List of Subjects in 12 CFR Part 650

Agriculture, Banks, banking, Conflicts of interests, Rural areas.

For the reasons stated in the preamble, part 650 of chapter VI,

title 12 of the Code of Federal Regulations is amended to read as

follows:

PART 650--FEDERAL AGRICULTURAL MORTGAGE CORPORATION

1. The authority citation for part 650 is revised to read as

follows:

Authority: Secs. 4.12, 5.9, 5.17, 8.11, 8.37, 8.41 of the Farm

Credit Act (12 U.S.C. 2183, 2243, 2252, 2279aa-11, 2279bb-6,

2279cc); sec. 514 of Pub. L. 102-552, 106 Stat. 4102; sec. 118 of

Pub. L. 104-105, 110 Stat. 168.

2. Part 650 is amended by adding a new subpart C to read as

follows:

[[Page 43636]]

Subpart C--Receiver and Conservator

Sec.

650.50 Grounds for appointment of a receiver or conservator.

650.51 Action for removal of receiver or conservator.

650.52 Voluntary liquidation.

650.55 Appointment of a receiver.

650.56 Powers and duties of the receiver.

650.57 Report to Congress.

650.58 Preservation of equity.

650.59 Notice to stockholders.

650.60 Creditor claims.

650.61 Priority of claims.

650.62 Payment of claims.

650.63 Inventory, audit, and reports.

650.64 Final discharge and release of the receiver.

650.65 Appointment of a conservator.

650.66 Powers and duties of the conservator.

650.67 Inventory, examination, and reports to stockholders.

650.68 Final discharge and release of the conservator.

Subpart C--Receiver and Conservator

Sec. 650.50 Grounds for appointment of a receiver or conservator.

(a) The grounds for the appointment of a receiver or conservator

for the Corporation are:

(1) The Corporation is insolvent. For purposes of this paragraph,

insolvent means:

(i) The assets of the Corporation are less than its obligations to

its creditors and others; or

(ii) The Corporation is unable to pay its debts as they fall due in

the ordinary course of business;

(2) There has been a substantial dissipation of the assets or

earnings of the Corporation due to the violation of any law, rule, or

regulation, or the conduct of an unsafe or unsound practice;

(3) The Corporation is in an unsafe or unsound condition to

transact business;

(4) The Corporation has committed a willful violation of a final

cease-and-desist order issued by the Farm Credit Administration Board;

(5) The Corporation is concealing its books, papers, records, or

assets, or is refusing to submit its books, papers, records, assets, or

other material relating to the affairs of the Corporation for

inspection to any examiner or any lawful agent of the Farm Credit

Administration Board.

(b) In addition to the grounds set forth in paragraph (a) of this

section, a receiver can be appointed for the Corporation if the Farm

Credit Administration Board determines that the appointment of a

conservator would not be appropriate when one of the following

conditions exists:

(1) The authority of the Corporation to purchase qualified loans or

issue or guarantee loan-backed securities is suspended; or

(2) The Corporation is classified under section 8.35 of the Act as

within enforcement level III or IV and the alternative actions

available under subtitle B of title VIII of the Act are not

satisfactory.

(c) In addition to the grounds set forth in paragraph (a) of this

section, a conservator can be appointed for the Corporation if:

(1) The Corporation is classified under section 8.35 of the Act as

within enforcement level III or IV; or

(2) The authority of the Corporation to purchase qualified loans or

issue or guarantee loan-backed securities is suspended.

Sec. 650.51 Action for removal of receiver or conservator.

Upon the appointment of a receiver or conservator for the

Corporation by the Farm Credit Administration Board pursuant to

Sec. 650.50 of this subpart, the Corporation may, within 30 days of

such appointment, bring an action in the United States District Court

for the District of Columbia, for an order requiring the Farm Credit

Administration Board to remove the receiver or conservator and, if the

charter has been canceled, to rescind the cancellation of the charter.

Notwithstanding any other provision of this part, the Corporation's

board of directors is empowered to meet subsequent to such appointment

and authorize the filing of an action for removal. An action for

removal may be authorized only by the Corporation's board of directors.

Sec. 650.52 Voluntary liquidation.

(a) The Corporation may voluntarily liquidate by a resolution of

its board of directors, but only with the consent of, and in accordance

with a plan of liquidation approved by, the Farm Credit Administration

Board. Upon adoption of such resolution, the Corporation shall submit

the resolution and proposed voluntary liquidation plan to the Farm

Credit Administration Board for preliminary approval. The Farm Credit

Administration Board, in its discretion, may appoint a receiver as part

of an approved liquidation plan. If a receiver is appointed for the

Corporation as part of a voluntary liquidation, the receivership shall

be conducted pursuant to the regulations of this part, except to the

extent that an approved plan of liquidation provides otherwise.

(b) If the Farm Credit Administration Board gives preliminary

approval to the liquidation plan, the board of directors of the

Corporation shall submit the resolution to liquidate to the

stockholders for a vote in accordance with the bylaws of the

Corporation.

(c) The Farm Credit Administration Board will consider final

approval of the resolution to voluntarily liquidate and the liquidation

plan after an affirmative stockholder vote on the resolution.

Sec. 650.55 Appointment of a receiver.

(a) The Farm Credit Administration Board may in its discretion

appoint, ex parte and without prior notice, a receiver for the

Corporation provided that one or more of the grounds for appointment as

set forth in Sec. 650.50 of this subpart exist.

(b) Upon the appointment of the receiver, the Chairman of the Farm

Credit Administration Board shall immediately notify the Corporation

and shall publish a notice of the appointment in the Federal Register.

(c) Upon the issuance of the order placing the Corporation into

liquidation and appointing the receiver, all rights, privileges, and

powers of the board of directors, officers, and employees of the

Corporation shall be vested exclusively in the receiver. The Farm

Credit Administration Board may cancel the charter of the Corporation

on such date as the Farm Credit Administration Board determines is

appropriate, but not later than the conclusion of the receivership and

discharge of the receiver.

Sec. 650.56 Powers and duties of the receiver.

(a) General. (1) Upon appointment as receiver, the receiver shall

take possession of the Corporation in order to wind up the business

operations of the Corporation, collect the debts owed to the

Corporation, liquidate its property and assets, pay its creditors, and

distribute the remaining proceeds to stockholders. The receiver is

authorized to exercise all powers necessary to the efficient

termination of the Corporation's operation as provided for in this

part.

(2) Upon its appointment as receiver, the receiver automatically

succeeds to:

(i) All rights, titles, powers, and privileges of the Corporation

and of any stockholder, officer, or director of the Corporation with

respect to the Corporation and the assets of the Corporation; and

(ii) Title to the books, records, and assets of the Corporation in

the possession of any other legal custodian of the Corporation.

(3) The receiver of the Corporation serves as the trustee of the

receivership estate and conducts its operations for

[[Page 43637]]

the benefit of the creditors and stockholders of the Corporation.

(b) Specific powers. The receiver may:

(1) Exercise all powers as are conferred upon the officers and

directors of the Corporation under law and the charter, articles, and

bylaws of the Corporation.

(2) Take any action the receiver considers appropriate or expedient

to carry on the business of the Corporation during the process of

liquidating its assets and winding up its affairs.

(3) Borrow funds in accordance with section 8.41(f) of the Act to

meet the ongoing administrative expenses or other liquidity needs of

the receivership.

(4) Pay any sum the receiver deems necessary or advisable to

preserve, conserve, or protect the Corporation's assets or property or

rehabilitate or improve such property and assets.

(5) Pay any sum the receiver deems necessary or advisable to

preserve, conserve, or protect any asset or property on which the

Corporation has a lien or in which the Corporation has a financial or

property interest, and pay off and discharge any liens, claims, or

charges of any nature against such property.

(6) Investigate any matter related to the conduct of the business

of the Corporation, including, but not limited to, any claim of the

Corporation against any individual or entity, and institute appropriate

legal or other proceedings to prosecute such claims.

(7) Institute, prosecute, maintain, defend, intervene, and

otherwise participate in any legal proceeding by or against the

Corporation or in which the Corporation or its creditors or

stockholders have any interest, and represent in every way the

Corporation, its stockholders and creditors.

(8) Employ attorneys, accountants, appraisers, and other

professionals to give advice and assistance to the receivership

generally or on particular matters, and pay their retainers,

compensation, and expenses, including litigation costs.

(9) Hire any agents or employees necessary for proper

administration of the receivership.

(10) Execute, acknowledge, and deliver, in person or through a

general or specific delegation, any instrument necessary for any

authorized purpose, and any instrument executed under this paragraph

shall be valid and effective as if it had been executed by the

Corporation's officers by authority of its board of directors.

(11) Sell for cash or otherwise any mortgage, deed of trust, chose

in action, note, contract, judgment or decree, stock, or debt owed to

the Corporation, or any property (real or personal, tangible or

intangible).

(12) Purchase or lease office space, automobiles, furniture,

equipment, and supplies, and purchase insurance, professional, and

technical services necessary for the conduct of the receivership.

(13) Release any assets or property of any nature, regardless of

whether the subject of pending litigation, and repudiate, with cause,

any lease or executory contract the receiver considers burdensome.

(14) Settle, release, or obtain release of, for cash or other

consideration, claims and demands against or in favor of the

Corporation or receiver.

(15) Pay, out of the assets of the Corporation, all expenses of the

receivership (including compensation to personnel employed to represent

or assist the receiver) and all costs of carrying out or exercising the

rights, powers, privileges, and duties as receiver.

(16) Pay, out of the assets of the Corporation, all approved claims

of indebtedness in accordance with the priorities established in this

part.

(17) Take all actions and have such rights, powers, and privileges

as are necessary and incident to the exercise of any specific power.

(18) Take such actions, and have such additional rights, powers,

privileges, immunities, and duties as the Farm Credit Administration

Board authorizes by order or by amendment of any order or by

regulation.

Sec. 650.57 Report to Congress.

On a determination by the receiver that there are insufficient

assets of the receivership to pay all valid claims against the

receivership, the receiver shall submit to the Secretary of the

Treasury and Congress a report on the financial condition of the

receivership.

Sec. 650.58 Preservation of equity.

(a) Except as provided for upon final distribution of the assets of

the Corporation pursuant to Sec. 650.62 of this subpart, no capital

stock, equity reserves, or other allocated equities of the Corporation

in receivership shall be issued, allocated, retired, sold, distributed,

transferred, or assigned.

(b) Immediately upon the adoption of a resolution by its board of

directors to voluntarily liquidate the Corporation, the capital stock,

equity reserves, and allocated equities of the Corporation shall not be

issued, allocated, retired, sold, distributed, transferred, or

assigned. Such activities could resume if the stockholders of the

Corporation or the Farm Credit Administration Board disapprove the

resolution. In the event the resolution is approved by the stockholders

of the Corporation and the Farm Credit Administration Board, the

liquidation plan shall govern disposition of the equities of the

Corporation as provided in Sec. 650.52 of this subpart.

Sec. 650.59 Notice to stockholders.

As soon as practicable after a receiver takes possession of the

Corporation, the receiver shall notify, by first class mail, each

holder of stock of the following matters:

(a) The number of shares such holder owns;

(b) That the stock and other equities of the Corporation may not be

retired or transferred until the liquidation is completed, whereupon

the receiver will distribute a liquidating dividend, if any, to the

stockholders; and

(c) Such other matters as the receiver or the Farm Credit

Administration Board deems necessary.

Sec. 650.60 Creditor claims.

(a) Upon appointment, the receiver shall promptly publish a notice

to creditors to present their claims against the Corporation, with

proof thereof, to the receiver by a date specified in the notice, which

shall be not less than 90 calendar days after the first publication.

The notice shall be republished approximately 30 days and 60 days after

the first publication. The receiver shall promptly send, by first class

mail, a similar notice to any creditor shown on the Corporation's books

at the creditor's last address appearing thereon. Claims filed after

the specified date shall be disallowed except as the receiver may

approve them for full or partial payment from the Corporation's assets

remaining undistributed at the time of approval.

(b) The receiver shall allow any claim that is timely received and

proved to the receiver's satisfaction. The receiver may disallow in

whole or in part any creditor's claim or claim of security, preference,

or priority that is not proved to the receiver's satisfaction or is not

timely received and shall notify the claimant of the disallowance and

reason therefor. Sending the notice of disallowance by first class mail

to the claimant's address appearing on the proof of claim shall be

sufficient notice. The disallowance shall be final unless, within 30

days after the notice of disallowance is mailed, the claimant files a

written request for payment regardless of the disallowance. The

receiver shall reconsider any claim upon the timely request of the

claimant

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and may approve or disapprove such claim in whole or in part.

(c) Creditors' claims that are allowed shall be paid by the

receiver from time to time, to the extent funds are available therefor

and in accordance with the priorities established in this part and in

such manner and amounts as the receiver deems appropriate. In the event

the Corporation has a claim against a creditor of the Corporation, the

receiver shall offset the amount of such claim against the claim

asserted by such creditor.

Sec. 650.61 Priority of claims.

The following priority of claims shall apply to the distribution of

the assets of the Corporation in liquidation:

(a) All costs, expenses, and debts incurred by the receiver in

connection with the administration of the receivership, all Farm Credit

Administration assessments for the costs of supervising and examining

the Corporation, and any amounts borrowed pursuant to

Sec. 650.56(b)(3).

(b) Administrative expenses of the Corporation, provided that such

expenses were incurred within 60 days prior to the receiver's taking

possession, and that such expenses shall be limited to reasonable

expenses incurred for services actually provided by accountants,

attorneys, appraisers, examiners, or management companies, or

reasonable expenses incurred by employees that were authorized and

reimbursable under a preexisting expense reimbursement policy and that,

in the opinion of the receiver, are of benefit to the receivership, and

shall not include wages or salaries of employees of the Corporation.

(c) If authorized by the receiver, claims for wages and salaries,

including vacation pay, earned prior to the appointment of the receiver

by an employee of the Corporation whom the receiver determines it is in

the best interest of the receivership to engage or retain for a

reasonable period of time.

(d) If authorized by the receiver, claims for wages and salaries,

including vacation pay, earned prior to the appointment of the

receiver, up to a maximum of three thousand dollars ($3,000) per person

as adjusted for inflation, by an employee of the Corporation not

engaged or retained by the receiver. The adjustment for inflation shall

be the percentage by which the Consumer Price Index (as prepared by the

Department of Labor) for the calendar year preceding the appointment of

the receiver exceeds the Consumer Price Index for the calendar year

1992.

(e) All claims for taxes.

(f) All claims of creditors which are secured by specific assets of

the Corporation, with priority of conflicting claims of creditors

within this same class to be determined in accordance with priorities

of applicable Federal or State law.

(g) All claims of general creditors.

Sec. 650.62 Payment of claims.

(a) All claims of each class described in Sec. 650.61 of this

subpart shall be paid in full or provisions shall be made for such

payment prior to the payment of any claim of a lesser priority. If

there are insufficient funds to pay all claims in a class in full,

distribution to that class will be on a pro rata basis.

(b) Following the payment of all claims, the receiver shall

distribute the remainder of the assets of the Corporation, if any, to

the owners of stock and other equities in accordance with the

priorities for impairment set forth in section 8.4(e)(3) of the Act and

the bylaws of the Corporation.

Sec. 650.63 Inventory, audit, and reports.

(a) As soon as practicable after taking possession of the

Corporation, the receiver shall take an inventory of the assets and

liabilities as of the date possession was taken.

(b) The receivership shall be audited on an annual basis by a

certified public accountant selected by the receiver.

(c) The receiver shall make an annual accounting or report, as

appropriate, available for review upon request to any stockholder of

the Corporation or any member of the public, with a copy provided to

the Farm Credit Administration.

(d) As soon as practicable after final distribution, the receiver

shall send to each stockholder of record a report summarizing the

disposition of the assets of the receivership and claims against the

receivership.

Sec. 650.64 Final discharge and release of the receiver.

After the receiver has made a final distribution of the assets of

the receivership, the receivership shall be terminated, the charter

shall be canceled by the Farm Credit Administration Board if such

cancellation has not previously occurred, and the receiver shall be

finally discharged and released.

Sec. 650.65 Appointment of a conservator.

(a) The Farm Credit Administration Board may in its discretion

appoint, ex parte and without prior notice, a conservator for the

Corporation provided that one or more of the grounds for appointment as

set forth in Sec. 650.50 of this subpart exist;

(b) Upon the appointment of a conservator, the Chairman of the Farm

Credit Administration shall immediately notify the Corporation and

shall publish a notice of the appointment in the Federal Register.

(c) As soon as practicable after the conservator takes possession

of the Corporation, the conservator shall notify, by first class mail,

each holder of stock in the Corporation of the establishment of the

conservatorship and shall describe the effect of the conservatorship on

the Corporation's operations and equity holdings.

(d) Upon the issuance of the order placing the Corporation in

conservatorship, all rights, privileges, and powers of the board of

directors, officers, and employees of the Corporation are vested

exclusively in the conservator.

(e) The Farm Credit Administration Board may, at any time,

terminate the conservatorship and direct the conservator to turn over

the Corporation's operations to such management as the Farm Credit

Administration Board may designate, in which event the provisions of

this subpart shall no longer apply.

Sec. 650.66 Powers and duties of the conservator.

(a) The conservator shall direct the Corporation's further

operation until the Farm Credit Administration Board decides that the

Corporation can operate without the conservatorship or places the

Corporation into receivership. Upon correction or resolution of the

problem or condition that provided the basis for the appointment, the

Farm Credit Administration Board may turn the Corporation over to such

management as the Farm Credit Administration Board may direct.

(b) The conservator shall exercise all powers necessary to continue

the ongoing operations of the Corporation, to conserve and preserve the

Corporation's assets and property, and otherwise protect the interests

of the Corporation, its stockholders, and creditors as provided in this

subpart.

(c) The conservator serves as the trustee of the Corporation and

conducts its operations for the benefit of the creditors and

stockholders of the Corporation.

(d) The conservator may exercise the powers that a receiver of the

Corporation may exercise under any of the provisions of Sec. 650.56(b)

of this subpart, except paragraphs (b)(2) and (b)(16). In interpreting

the applicable paragraphs for purposes of this section, the terms

``conservator'' and

[[Page 43639]]

``conservatorship'' shall be read for ``receiver'' and

``receivership''.

(e) The conservator may also take any other action the conservator

considers appropriate or expedient to the continuing operation of the

Corporation.

Sec. 650.67 Inventory, examination, and reports to stockholders.

(a) As soon as practicable after taking possession of the

Corporation, the conservator shall take an inventory of the assets and

liabilities of the Corporation as of the date possession was taken. One

copy of the inventory shall be filed with the Farm Credit

Administration.

(b) The conservatorship shall be examined by the Farm Credit

Administration in accordance with section 8.11 of the Act.

(c) The conservatorship shall prepare and file financial reports

and other documents in accordance with the requirements of Sec. 620.40

and part 621 of this chapter. The conservator of the Corporation shall

provide the certification required in Sec. 621.14 of this chapter.

Sec. 650.68 Final discharge and release of the conservator.

At such time as the conservator shall be relieved of its

conservatorship duties, the conservator shall file a report on the

conservator's activities with the Farm Credit Administration. The

conservator shall thereupon be completely and finally released.

Dated: August 7, 1997.

Floyd Fithian,

Secretary, Farm Credit Administration Board.

[FR Doc. 97-21671 Filed 8-14-97; 8:45 am]

BILLING CODE 6705-01-P