Silicon Valley Bank’s Liquidation Plan Approved with Modifications by Bankruptcy Court
New York Bankruptcy Court has approved the liquidation and emergence from Chapter 11 for Silicon Valley Bank’s former owner. However, the judge rejected parts of the plan that federal regulators argued would hinder their defense against efforts by SVB Financial Group to recover $1.9 billion seized by an FDIC receiver during the bank’s collapse.
Judge Approves Liquidation, Retains FDIC Claims
U.S. Bankruptcy Judge Martin Glenn approved SVB Financial’s liquidation plan on Friday, allowing the establishment of a liquidation trust and granting creditors control over remaining assets. However, he sided with the Federal Deposit Insurance Co. (FDIC), adding provisions to ensure that the bank’s causes of action, now held by an FDIC receiver, remain intact. In a separate order, Judge Glenn upheld the FDIC’s objection to SVB Financial’s Chapter 11 plan, refusing to grant releases that could impair the FDIC’s ability to assert a setoff defense in ongoing lawsuits aimed at recovering the seized $1.9 billion.
SVB Financial’s Chapter 11 and Subsequent Developments
SVB Financial entered Chapter 11 in March 2023 following the collapse of the prominent California-based bank, known for its work with tech startups. The bank’s assets were taken over by an FDIC-appointed receiver and later sold to First Citizens.
Creditors and Payment Plan
In January, SVB Financial’s parent company announced a restructuring support agreement backed by most unsecured creditors and senior noteholders. The plan involves creating a liquidating trust funded by selling remaining business operations, including $81 million from its securities trading arm and $340 million from its venture capital group, with remaining operations reorganized under creditor ownership.
Dispute Over FDIC Claims and Court Jurisdiction
According to the plan, senior secured noteholders owed approximately $3.3 billion and general unsecured creditors owed an estimated $180.4 million will be paid from the liquidating trust and receive equity in the reorganized SVB Financial. Any surplus in the liquidating trust will first go to subordinated noteholders owed around $104.5 million, followed by preferred equity interest holders owed approximately $3.7 million.
Judge Glenn’s Ruling
The confirmation hearing highlighted a dispute between SVB Financial and the FDIC. After taking over SVB’s assets, the FDIC receiver also assumed customer deposits, including those from the bank’s parent company. SVB Financial has filed several lawsuits, accusing the FDIC receiver of unlawfully holding $1.9 billion from its accounts. These cases are pending in federal courts in New York and California.
Legal Representation and Case Information
The FDIC argued that the receiver’s setoff rights against SVB Financial’s claims should be preserved, objecting to the Chapter 11 plan’s proposed release of intercompany claims. The agency contended that the matter should be decided by federal courts, not the bankruptcy court. SVB Financial, supported by its unsecured creditors’ committee, argued that the FDIC lacked standing to challenge the plan as it had not filed a claim in the Chapter 11 case.
Judge Glenn required the FDIC to provide supplemental information on the seized accounts before ruling. On Friday, he sustained the FDIC’s objection, incorporating most of its proposed language into the confirmation order. He affirmed that the FDIC could challenge the plan’s provisions despite not filing a Chapter 11 claim and emphasized that the validity of setoff rights should be decided by the district courts handling SVB Financial’s lawsuits.
SVB Financial is represented by Sullivan & Cromwell LLP, while the FDIC is represented by Reed Smith LLP. The case is In re: SVB Financial Group, case number 1:23-bk-10367, in the U.S. Bankruptcy Court for the Southern District of New York. The pending lawsuits are SVB Financial Group v. FDIC in the U.S. District Court for the Southern District of New York and SVB Financial Group v. FDIC et al. in the U.S. District Court for the Northern District of California.
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