§5382 Judicial Review

Summary

When the Secretary finds that a covered financial company meets the required criteria and is in default or in danger of default, the Secretary must tell the Corporation and the company. If the company’s board agrees, the Secretary appoints the Corporation as receiver. If the board does not agree, the Secretary files a sealed petition in the U.S. District Court for the District of Columbia and gives the court the Secretary’s findings. The court holds a confidential hearing where the company can oppose. The court has 24 hours to decide whether the Secretary’s finding was unreasonable. If the court agrees with the Secretary, it immediately lets the Secretary appoint the Corporation and liquidation begins. If the court disagrees, it must give written reasons and let the Secretary fix and refile the petition. If the court does not decide within 24 hours, the petition is automatically granted, the Corporation is appointed, and liquidation starts. Anyone who recklessly leaks the Secretary’s determination, the petition, or the existence of these secret court proceedings can be fined up to $250,000, jailed up to 5 years, or both. Either the Secretary or the company (if the company did not consent to a receiver) can appeal to the U.S. Court of Appeals for the D.C. Circuit within 30 days. Appeals must be handled quickly and only look at whether the Secretary’s finding was unreasonable. A party may seek Supreme Court review within 30 days, also on an expedited basis and limited to the same question. The court must give written reasons for its decisions and send them to the Secretary and the company. The District Court must adopt rules within 6 months after July 21, 2010, to make sure the 24-hour deadline and refiling process work, and it must send those rules to four Congressional committees. For covered companies the rules in this part, not the Bankruptcy Code, apply when the Corporation is receiver. A receivership ends after 3 years unless the Corporation extends it up to 1 year for certain financial or stability reasons, and it may extend a second year with additional certification and a report within 30 days. Further brief extensions are allowed only to finish ongoing litigation and must end no later than 90 days after that litigation ends, with required findings and reports. The Corporation can make rules about ending receiverships and will not be liable for unresolved claims after a receivership ends. Two government offices must study and report on bankruptcy and liquidation of financial firms (reports due not later than 1 year after July 21, 2010, yearly until year 3, and every fifth year after), and the Comptroller General must also study international coordination and prompt corrective action and send required reports; the Council must report actions taken within 6 months after receipt of the prompt corrective action study.