Fact Sheet Farm Credit Administration 

 1501 Farm Credit Drive 

 McLean, Virginia 22102-5090 

 

July 13, 2006 

FCA Final Rule – Termination of System Status 

On January 11, 2006, FCA published a proposal to update existing regulations under which a 

Farm Credit System bank or association may terminate its System charter and become a 

financial institution under another Federal or State chartering authority. The final rule was 

approved by the FCA Board at the July 13 Board meeting and includes the following provisions. 

Ensures Sufficient Time and Information for FCA, Institution Board, and Stockholder 

Deliberations. The final rule separates FCA’s review of a terminating institution’s disclosure 

information from FCA’s approval of the termination itself in order to give FCA, the institution’s 

board, and stockholders sufficient time to consider a termination application.

Provides for More Timely Communication with Stockholders, the Public, and FCA. The 

final rule permits a terminating institution to communicate, without FCA’s prior approval, with 

stockholders and the public during the termination process. We require the institution to timely 

file such communications with us. We may require correction of misleading or inaccurate 

information and may require certain termination-related documents to be posted on the 

institution’s Web site and our Web site. 

Provides for Special Studies, Analyses, and Rulings. We may require a terminating 

institution to obtain independent analyses of termination-related matters, as well as to hold 

informational meetings for stockholders. In a change from the proposed rule, we provide that if 

we require an independent analysis of the impact of termination solely on parties other than the 

terminating institution and its stockholders, we will allow the institution to deduct the cost of that 

analysis when calculating its exit fee. 

Ensures Director Rights. The final rule strengthens protections that enable directors to 

consult with, and be reimbursed for expenses of, independent legal and financial advisors. In a 

change from the proposed rule, we also provide that the institution’s board may deny 

reimbursement by a two-thirds’ vote. In addition, the rule allows public or private expressions of 

directors’ opinions about the termination. 

Ensures Sufficient Equity Holder Representation in Voting Processes. The final rule 

ensures sufficient equity holder representation in voting processes by establishing a quorum 

requirement of 30 percent of voting stockholders that must be present in person or by proxy at 

the stockholder meetings for the termination vote and any reconsideration vote. This 

requirement ensures that a significant proportion of stockholders are engaged in the termination 

process. 
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Removes “Material Adverse Effect” Criterion. We eliminate a potentially confusing criterion 

pertaining to reasons why we may disapprove a termination application. Some members of the 

public had mistakenly believed that it was the only reason for which we might disapprove an 

application. 

Discloses Changing Structure After a Termination Event. We require a terminating 

institution to explain to its equity holders any corporate restructuring that is expected to occur 

within 18 months after termination. 

Requires Directors to Vote at Critical Points in Termination Process. The directors vote to 

initiate the institution’s termination process, vote before sending the disclosure and termination 

plan to FCA, and vote before sending the disclosure and termination plan to its equity holders. 

The third vote was added to the new rule to ensure that the board continues to support the 

termination. 

Clarifies Treatment of Taxes. We clarify that, in addition to deducting termination-related tax 

liabilities in the exit fee calculation, a terminating institution must also add termination-related 

tax benefits to assets in the calculation. 

Eliminates Outdated FAC References. We remove all references to payment of Financial 

Assistance Corporation debt, because all such debt was repaid in 2005.