Judge Steps Into Lincoln Parent’s Bankruptcy Case

PHOENIX â€”  U.S. District Judge Charles Hardy agreed Monday to oversee parts of American Continental Corp.’s bankruptcy, saying that if the case is left wholly with bankruptcy court, a conflict in federal law may result.

The conflict stems from the issue of whether Chapter 11 laws under the U.S. Bankruptcy Code supersede or are subject to Title 12 laws, which govern banking institutions, said Phillip Mitchell, an attorney for several secured creditors. Chapter 11 filings allow a company to reorganize with protection from its creditors.

Hardy’s decision moves the bankruptcy cases involving the Phoenix-based holding company and 11 subsidiaries of Lincoln Savings & Loan in Irvine from bankruptcy court to federal court.

Lincoln, an American Continental subsidiary that did not file for reorganization, was taken over by federal regulators April 14, a day after American Continental’s bankruptcy filing.

The district court is to rule later on whether the subsidiaries of Lincoln should be severed from the proceedings.

Taken on their own, the subsidiaries have nearly $3 billion in assets and just $5 million in debts, said John Owen, an attorney with a law firm representing the Federal Deposit Insurance Corp.

Federal regulators maintain that the thrift’s subsidiaries are not insolvent and thus should not be in bankruptcy court.

American Continental again challenged the competency of federal regulators to manage the assets of these subsidiaries and asked that the court appoint a trustee in their place.

Attorneys for federal regulators said they will file a motion to have the subsidiaries dismissed, based on the new S&L; bailout legislation.