of member banks’ depositors, either under liquidation or in special administration, if “the cost to the Fund is less”.
Art. 28 regulates the case of possible alternative interventions in support of member banks in CAL.
Art. 29 regulates possible support interventions for members in special administration to avoid the need for reimbursements of deposits should there be a passage from special administration to compulsory liquidation.
Prior and preliminary to both cases of “extraordinary interven- tions”, there is the assessment by the fund that it is economically preferable to an eventual payout to depositors by the fund, net of any revocations in liquidation.
This precondition30 must inform every decision of the fund when considering alternative interventions.
In Art. 28, as we have seen, deals with alternative interventions for banks in CAL. It gives a list of typical liquidation scenarios: “transfer of assets and liabilities, of companies or divisions of companies, or of the totality of property and claims ... ”
As is usual when regulations refer to non-juridical aspects, the list becomes an example and is not exhaustive. Any liquidation produc- tion the financial mind can imagine, provided its purpose is the liqui- dation of the company, can fall under the norms of Art. 28.
In the same way, any liquidation action (i.e., transfer of division of a company) can come under support operations for a company under special administration.
Art. 29, on the other hand, is dedicated to support operations for members in special administration to avoid CAL, a necessary condi- tion for the fund to payout to depositors.
But here too the list is just for example and not exhaustive, as indi- cated by d in para. 2 “other technical forms”, namely any support action that could restore a company in crisis and remove it from special administration and placed in bonis, including those listed in Art. 28.
Interventions in a, b and c, that is, financing, guarantees and acquisition of equity interests are the usual support interventions requested and that can be requested.
Other interventions in other circumstances may be requested provided their aim is to avoid compulsory liquidation and which, in any case, are less costly than fund payout.
As in Art. 28, it is not possible to foresee which operation best leads to the goal of avoiding the burden of payout. That depends on the case in point. Thus, both Arts 28 and 29 are “open” regulations.
The fund can, however, finance a member, in the form of a private loan, in whatever regulated form that implies the “restitution” of the loan.
Regulations on shareholdings confirm this case. Shareholdings are a form of temporary funding, and shareholdings must be disposed of as soon as possible, so as to return the “loan”.
Art. 29, para. 3 states expressly “should the intervention take form of an equity interest, the Fund’s possession of said interest must be limited to the time necessary to proceed with its disposal as advanta- geously as possible.” 31
Obviously, disposing of equity interests can require a somewhat longer time which can create the necessity of managing the shares in search of possible buyers. Such management does not form part of the usual business of the fund.
Thus, it could be opportune, following the example of other DGS’s, to resort to special vehicles set up by the fund or used by the fund.
However, as established in Art. 1, the fund is a “pure” consor- tium, without true entrepreneurial activity. Any profits made by the fund must be divided among its members according to their contributions.
In fact, Art. 30 of the statutes states: “assets and property of all kinds, acquired or recovered through the effect of interventions, shall be assigned immediately to the Fund members, according to their respective contributions to the intervention involved”. The same holds true for the purchase of equity interests in support of a member.
There are purchases that, by their nature, would best be tempo- rarily attributed to the consortium and not to its members, which could be distributed after consortium interventions.
First, any shares purchased, and temporarily assigned, would best be managed singly by the consortium.
It would be easier, in fact if the consortium managed the search for buyers and would then distribute any profits among the members from the sales.
Art. 30, para. 2 of FITD Statutes provides for this: “in the event of acquisition of equity interests, or when considerations of economic
advantage require it, the Board may decide that acquired or recovered assets and property shall be held temporarily by the Fund.”
Hence, the purchase of shares is considered a normal option often resorted to and directly attributed to the consortium fund and not to the members.
In that case, the shares will not be shown in the members’ balance sheets until the time they are sold off and the profits are distributed, as per Art. 30 of FITD Statutes.
Holding, even briefly, the shares by the fund requires an explicit decision by the board at the moment of purchase, again in Art. 30, para. 2 of FITD Statutes.