American Thrift & Loan Bankruptcy Hearing Set
A hearing scheduled for today before a U.S. Bankruptcy judge could lead to a decision on whether American Thrift & Loan will remain under the protection of the bankruptcy court or be forced to liquidate under state supervision.
Hanging in the balance are about 1,728 deposit accounts totaling $14.5 million that have been frozen since June 6 when American Thrift & Loan filed for protection under Chapter 11 of the federal bankruptcy code. Since the filing by the single-branch financial institution situated in Mission Valley, depositors have been denied access to their money.
About 200 of American Thrift & Loan’s depositors and other creditors attended the first creditors meeting at the San Diego Civic Center on Monday. Several angrily demanded to know when their accounts would be unfrozen and why they weren’t given advance notice of the bankruptcy filing, a spokesman said.
In briefs filed earlier this month, the state Department of Corporations and the state-supervised Thrift Guaranty Corp. asked U.S. Bankruptcy Judge Peter Bowie to disallow American’s Chapter 11 filing, name Thrift Guaranty as bankruptcy trustee or name another trustee to replace existing American Thrift & Loan management.
American Thrift & Loan filed for Chapter 11 shortly before it would have been forced into liquidation by a 1985 law that required California’s 54 thrift and loans to switch to Federal Deposit Insurance Corp. coverage by July 1.
Previously, thrift and loan deposits were insured up to $50,000 by the Thrift Guaranty Corp., the industry’s self-insurance fund that operates under close state supervision.
Crippled by recent losses that severely weakened its capital base, American Thrift & Loan was denied FDIC insurance early last month, one of eight California thrift and loans to be denied the coverage.
Although the other capital-deficient thrift and loans all submitted to liquidation under the auspices of the Thrift Guaranty Corp., American Thrift & Loan decided to file under protection of Chapter 11. Management justified the filing by saying it would stay in control of the institution during liquidation, which would result in a better return from the sale of loans and other assets than if regulators directed the liquidation.
In filings with the bankruptcy court earlier this month, the Department of Corporations and Thrift Guaranty Corp. maintained that it is illegal for a financial institution to declare bankruptcy, that regulators have the right to assist or liquidate troubled institutions.
