Opinion ID: 547464
Heading Depth: 4
Heading Rank: 1

Heading: GAAP Insolvency

Text: 44 Although the Bank Board concedes that Charter Federal is technically GAAP insolvent, the Bank Board determined that Charter Federal did not meet the voluntary conversion insolvency criterion. 84 The Bank Board found Charter Federal's technical GAAP insolvency to be artificial, not an accurate reflection of Charter Federal's net worth, and purposely maintained by the insiders to qualify for a voluntary conversion. 85 After examining the true value of Charter Federal's Freddie Mac stock, the Bank Board concluded that upon liquidation Charter Federal would have significant realizable net equity. 86 Accordingly, the Bank Board decided that it was appropriate to consider unrealized Freddie Mac stock gains when determining whether Charter Federal was insolvent. 87 Due to these unrealized gains, the Bank Board found that Charter Federal was not insolvent for voluntary conversion purposes. 88 45 Charter Federal claims to be GAAP insolvent in accordance with the voluntary conversion eligibility requirement, and turns to the language of the Bank Board's regulations for support. These regulations provide that a converting association is GAAP insolvent when its liabilities exceed its assets, as calculated under generally accepted accounting principles on a going concern basis.... 12 C.F.R. Sec. 563b.24(a) (1989). 46 We agree with Charter Federal that it does meet the voluntary conversion requirement of GAAP insolvency. According to the plain meaning of the words of the Bank Board-drafted regulation, Charter Federal is GAAP insolvent. The regulation does not require insolvency on a liquidation basis; it refers to a going concern basis. Neither does the regulation mention any situations in which departure from GAAP for insolvency determinations would be appropriate. Charter Federal's liabilities do exceed its assets, calculated according to GAAP on a going concern basis. Therefore, we set aside the Bank Board's finding of Charter Federal's solvency because [t]he failure of an agency to comply with its own regulations constitutes arbitrary and capricious conduct. Simmons v. Block, 782 F.2d 1545, 1550 (11th Cir.1986). In making this determination, we do not consider whether the drafters intended to exclude artificially maintained GAAP insolvency because where the language selected by the drafters is clear and unequivocal, the courts are bound to give effect to the plain meaning of the chosen words and no duty of interpretation arises. KCMC, Inc. v. FCC, 600 F.2d 546, 549 (5th Cir.1979). 89 47