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Banking Interpretations

NYSBL 17 & 595

New York State Banking Department
Memorandum

To: Supervising Examiner, Martin McDonnough
From: Harry C. Goberdhan - Associate Counsel
Date: March 3, 2008
Subject: [---] - In Bankruptcy.

Issue

Does the filing of a Chapter 11 action in Bankruptcy Court effectuate a stay against seeking payment for assessments due the Department, and/or forestall the Department's action against the entity to suspend or revoke its license?

Recommendation

The Bankruptcy filing does stay the Department's ability to collect against the entity.  In line with this conclusion, a claim for the full amount of the assessments should be filed with the Bankruptcy Court, and additionally, a claim should also be filed against the surety bond, which was provided by the entity.

Note that, in the event the bonding company pays before payment is received from the Bankruptcy Court, then the claim filed with the Court should be withdrawn. Further, in the event payment is received simultaneously from both sources then the payment from the trustee (Bankruptcy Court) should be returned to the trustee.

In connection with a possible action by the Department to suspend or revoke the entity's license for non-payment of the assessment, note that the Bankruptcy filing would cause a stay of any such action if it is for a "pecuniary purpose" and a suspension or revocation for the non payment of an assessment would most likely be considered for a "pecuniary purpose." On the other hand, if the suspension or revocation is for matters of "public welfare," then the bankruptcy court's stay is not effectuated and the Department may suspend or hold a hearing to revoke. "Matters of public welfare" could possibly be the fact that [---] does not have a line of credit that can be utilized to honor its commitments to consumers.

Noted: MEG