HOUSE BILL 44
56th legislature - STATE OF NEW MEXICO - first session, 2023
INTRODUCED BY
Marian Matthews
AN ACT
RELATING TO LOANS; DEFINING "FEDERAL HOME LOAN BANK" IN THE INSURERS CONSERVATION, REHABILITATION, AND LIQUIDATION LAW; AMENDING THE INSURERS CONSERVATION, REHABILITATION, AND LIQUIDATION LAW; PROVIDING EXCEPTIONS FOR AGREEMENTS INVOLVING FEDERAL HOME LOAN BANKS IN REGARD TO THE AVOIDANCE OF TRANSFERS, PREFERENCES AND LIENS; PROVIDING RIGHTS TO FEDERAL HOME LOAN BANKS REGARDING SECURED CLAIMS ON INSURERS THAT ARE SUBJECT TO DELINQUENCY PROCEEDINGS PURSUANT TO THE LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION ACT.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:
SECTION 1. Section 59A-41-1 NMSA 1978 (being Laws 1984, Chapter 127, Section 694) is amended to read:
"59A-41-1. SHORT TITLE.--[This article constitutes and] Chapter 59A, Article 41 NMSA 1978 may be cited as the "Insurers Conservation, Rehabilitation, and Liquidation Law"."
SECTION 2. Section 59A-41-3 NMSA 1978 (being Laws 1984, Chapter 127, Section 695) is amended to read:
"59A-41-3. DEFINITIONS.--As used in [this article] the Insurers Conservation, Rehabilitation, and Liquidation Law and unless context otherwise requires, the words and terms defined in Sections [696 through 708 of this article] 59A-41-4 through 59A-41-16 NMSA 1978 shall have the meanings ascribed to them respectively in such sections."
SECTION 3. A new Section 59A-41-7.1 NMSA 1978 is enacted to read:
"59A-41-7.1. [NEW MATERIAL] "FEDERAL HOME LOAN BANK" DEFINED.--"Federal home loan bank" means an institution established pursuant to the Federal Home Loan Bank Act."
SECTION 4. Section 59A-41-42 NMSA 1978 (being Laws 1984, Chapter 127, Section 734) is amended to read:
"59A-41-42. FRAUDULENT TRANSFERS PRIOR TO PETITION.--
A. Except as provided in Subsection D of this section, every transfer made or suffered and every obligation incurred by an insurer within one [(1)] year prior to the filing of a successful petition for rehabilitation or liquidation under the Insurance Code is fraudulent as to then existing and future creditors if made or incurred without fair consideration, or with actual intent to hinder, delay or defraud [either] existing or future creditors. A transfer made or an obligation incurred by an insurer ordered to be rehabilitated or liquidated under the Insurance Code, which is fraudulent under this section, may be avoided by the receiver, except as to a person who in good faith is a purchaser, lienor or obligee for a present fair equivalent value, and except that any purchaser, lienor or obligee, who in good faith has given a consideration less than fair for such transfer, lien or obligation, may retain the property, lien or obligation as security for repayment. The court may, on due notice, order any such transfer or obligation to be preserved for the benefit of the estate, and in that event, the receiver shall succeed to and may enforce the rights of the purchaser, lienor or obligee.
B. The following provisions apply whether there are or were creditors who might have obtained any liens or persons who might have become bona fide purchasers:
(1) a transfer of property other than real property shall be deemed to be made or suffered when it becomes so far perfected that no subsequent lien obtainable by legal or equitable proceedings on a simple contract could become superior to the rights of the transferee;
(2) a transfer of real property shall be deemed to be made or suffered when it becomes so far perfected that no subsequent bona fide purchaser from the insurer could obtain rights superior to the rights of the transferee;
(3) a transfer [which] that creates an equitable lien shall not be deemed to be perfected if there are available means by which a legal lien could be created; and
(4) [Any] a transfer not perfected prior to the filing of a petition for liquidation shall be deemed to be made immediately before the filing of the successful petition.
[(5) The provisions of this subsection apply whether or not there are or were creditors who might have obtained any liens or persons who might have become bona fide purchasers.]
C. [Any] Except as provided in Subsection D of this section, a transaction of the insurer with a reinsurer shall be deemed fraudulent and may be avoided by the receiver under Subsection A of this section if:
(1) the transaction consists of the termination, adjustment or settlement of a reinsurance contract in which the reinsurer is released from any part of its duty to pay the originally specified share of losses that had occurred prior to the time of the transaction, unless the reinsurer gives a present fair equivalent value for the release; and
(2) any part of the transaction took place within one year prior to the date of filing of the petition through which the receivership was commenced.
D. A receiver shall not avoid any transfer of, or obligation to transfer, money or property arising under or in connection with a federal home loan bank security agreement or a pledge agreement, security agreement, collateral agreement, guarantee agreement or other similar arrangement or credit enhancement relating to a security agreement, to which a federal home loan bank is a party, except if the transfer, or obligation to transfer, was made with actual intent to hinder, delay or defraud an existing or future creditor."
SECTION 5. Section 59A-41-43.1 NMSA 1978 (being Laws 1993, Chapter 320, Section 94) is amended to read:
"59A-41-43.1. VOIDABLE PREFERENCES AND LIENS.--
A. [(1)] A preference is a transfer of any of the property of an insurer to or for the benefit of a creditor, for or on account of an antecedent debt, made or suffered by the insurer within one year before the filing of a successful petition for rehabilitation or liquidation under [Chapter 59A, Article 41 NMSA 1978] the Insurers Conservation, Rehabilitation, and Liquidation Law, the effect of which transfer may be to enable the creditor to obtain a greater percentage of this debt than another creditor of the same class would receive. If a liquidation order is entered while the insurer is already subject to a rehabilitation order, then such transfers shall be deemed preferences if made or suffered within one year before the filing of the petition for rehabilitation, or within two years before the filing of the petition for liquidation, whichever time is shorter.
[(2) Any] B. Except as provided in Subsection N of this section, a preference may be avoided by the rehabilitator or liquidator if:
[(a)] (1) the insurer was insolvent at the time of the transfer;
[(b)] (2) the transfer was made within four months before the filing of the petition;
[(c)] (3) the creditor receiving [it] the preference or to be benefited thereby or [his] the creditor's agent acting with reference thereto had, at the time when the transfer was made, reasonable cause to believe that the insurer was insolvent or was about to become insolvent; or
[(d)] (4) the creditor receiving [it] the preference was an officer, [or any] employee, [or] attorney or other person who was [in fact] in a position of comparable influence in the insurer to an officer, whether or not [he] that person held such position, or any shareholder holding directly or indirectly more than five percent of [any] a class of [any] an equity security issued by the insurer, or any other person, firm, corporation, association or aggregation of persons with whom the insurer did not deal at arm's length.
[(3)] C. Where the preference is voidable, the rehabilitator or liquidator may recover the property or, if it has been converted, its value from any person who has received or converted the property; except where a bona fide purchaser or lienor has given less than fair equivalent value. [he] If a bona fide purchaser or lienor has given less than fair equivalent value, the person shall have a lien upon the property to the extent of the consideration actually given by [him] the person. Where a preference by way of lien or security title is voidable, the court may on due notice order the lien or title to be preserved for the benefit of the estate, in which event the lien or title shall pass to the liquidator.
[B.] D. The following provisions apply whether there are or were creditors who might have obtained liens or persons who might have become bona fide purchasers:
(1) a transfer of property other than real property shall be deemed to be made or suffered when it becomes so far perfected that no subsequent lien obtainable by legal or equitable proceedings on a simple contract could become superior to the rights of the transferee;
(2) a transfer of real property shall be deemed to be made or suffered when it becomes so far perfected that no subsequent bona fide purchaser from the insurer could obtain rights superior to the rights of the transferee;
(3) a transfer [which] that creates an equitable lien shall not be deemed to be perfected if there are available means by which a legal lien could be created; and
(4) a transfer not perfected prior to the filling of a petition for liquidation shall be deemed to be made immediately before the filing of the successful petition.
[(5) The provisions of this subsection apply whether or not there are or were creditors who might have obtained liens or persons who might have become bona fide purchasers.
C. (1)] E. A lien obtainable by legal or equitable proceedings upon a simple contract is [going] one arising in the ordinary course of such proceedings upon the entry or docketing of a judgment or decree, or upon attachment, garnishment, execution, or like process, whether before, upon, or after judgment or decree and whether before or upon levy. It does not include liens [which] that under applicable law are given a special priority over other liens [which] that are prior in time.
[(2)] F. A lien obtainable by legal or equitable proceedings could become superior to the rights of a transferee, or a purchaser could obtain rights superior to the rights of transferee within the meaning of Subsection [B] D of this section, if such consequences would follow only from the lien or purchase itself, or from the lien or purchase followed by any step wholly within the control of the respective lienholder or purchaser, with or without the aid of ministerial action by public officials. Such a lien could not, however, become superior and such a purchase could not create superior rights for the purpose of Subsection [B] D of this section through any acts subsequent to the obtaining of such a lien or subsequent to such a purchase [which] that require the agreement or concurrence of any third party or [which] that require any further judicial action or ruling.
[D.] G. A transfer of property for or on account of a new and contemporaneous consideration [which] that is deemed under Subsection [B] D of this section to be made or suffered after the transfer because of delay in perfecting it does not thereby become a transfer for or on account of an antecedent debt if any acts required by the applicable law to be performed in order to perfect the transfer as against liens or bona fide purchasers' rights are performed within twenty-one days or any period expressly allowed by law, whichever is less. A transfer to secure a future loan, if such a loan is actually made, or a transfer [which] that becomes security for a future loan, shall have the same effect as a transfer for or on account of a new and contemporaneous consideration.
[E.] H. If [any] a lien deemed voidable under [Paragraph (2) of] Subsection [A] B of this section has been dissolved by the furnishing of a bond or other obligation, the surety on which has been indemnified directly or indirectly by the transfer of or the creation of a lien upon any property of an insurer before the filing of a petition under [Chapter 59A, Article 41 NMSA 1978 which] the Insurers Conservation, Rehabilitation, and Liquidation Law that results in a liquidation order, the indemnifying transfer or lien shall also be deemed voidable.
[F.] I. The property affected by any lien deemed voidable under [Subsections] Subsection A, [and E] B or C and H of this section shall be discharged from such lien, and that property and any of the indemnifying property transferred to or for the benefit of a surety shall pass to the liquidator, except that the court may on due notice order any such lien to be preserved for the benefit of the estate and the court may direct that such conveyance be executed as may be proper or adequate to evidence the title of the liquidator.
[G.] J. The court before which the rehabilitation or liquidation proceeding is pending shall have summary jurisdiction of any proceeding by the liquidator to hear and determine the rights of any parties under this section. Reasonable notice of any hearing in the proceeding shall be given to all parties in interest, including the obligee of a releasing bond or other like obligation. Where an order is entered for the recovery of indemnifying property in kind or for the avoidance of an indemnifying lien, the court, upon application of any party in interest, shall in the same proceeding ascertain the value of the property or lien, and if the value is less than the amount for which the property is indemnity or less than the amount of the lien, the transferee or lienholder may elect to retain the property or lien upon payment of its value, as ascertained by the court, to the rehabilitator or liquidator, within such reasonable times as the court shall fix.
[H.] K. The liability of the surety under a releasing bond or other like obligation shall be discharged to the extent of the value of the indemnifying property recovered or the indemnifying lien nullified and avoided by the rehabilitator or liquidator, or where the property is retained under Subsection [G] J of this section to the extent of the amount paid to the rehabilitator or liquidator.
[I.] L. If a creditor has been preferred, and afterward in good faith gives the insurer further credit without security of any kind, for property [which] that becomes a part of the insurer's estate, the amount of the new credit remaining unpaid at the time of the petition may be set off against the preference [which] that would otherwise be recoverable from [him] the creditor.
[J.] M. If an insurer shall, directly or indirectly, within four months before the filing of a successful petition for rehabilitation or liquidation under [Chapter 59A, Article 41 NMSA 1978] the Insurers Conservation, Rehabilitation, and Liquidation Law, or at any time in contemplation of a delinquency proceeding, pay money or transfer property to an attorney-at-law for services rendered or to be rendered, the transactions may be examined by the court on its own motion or shall be examined by the court on petition of the rehabilitator or liquidator and shall be held valid only to the extent of a reasonable amount to be determined by the court, and the excess may be recovered by the rehabilitator or liquidator for the benefits of the estate; provided that where the attorney is in a position of influence in the insurer or an affiliate thereof payment of any money or the transfer of any property to the attorney-at-law for services rendered or to be rendered shall be governed by the provisions of [Subparagraph (d) of] Paragraph [(2)] (4) of Subsection [A] B of this section.
N. A liquidator or rehabilitator shall not avoid a preference arising under or in connection with a federal home loan bank security agreement or a pledge agreement, security agreement, collateral agreement, guarantee agreement or other similar arrangement or credit enhancement relating to a security agreement to which a federal home loan bank is a party."
SECTION 6. Section 59A-41-53 NMSA 1978 (being Laws 1984, Chapter 127, Section 745, as amended) is amended to read:
"59A-41-53. SUMMARY PROCEEDINGS--ENFORCEMENT--PENALTY.--
A. The superintendent may apply for and the district court for Santa Fe county or the county in which the insurer has its principal office may grant such restraining orders, temporary and permanent injunctions and other orders as may be deemed necessary to enforce the superintendent's order; except that a federal home loan bank shall not be stayed, enjoined or prohibited from exercising or enforcing a right or cause of action regarding collateral pledged under a security agreement or a pledge agreement, security agreement, collateral agreement, guarantee agreement or other similar arrangement or credit enhancement relating to such federal home loan bank security agreement.
B. Violation of any order of the superintendent issued under Section 59A-41-51 NMSA 1978 by any person as to whom the order is in effect shall subject such person to a penalty of not more than ten thousand dollars ($10,000), to be collected in a civil action brought by the attorney general in the name of the state of New Mexico. The attorney general shall deposit all funds so collected with the state treasurer for credit as provided for insurance department receipts in general under Section 59A-6-5 NMSA 1978."
SECTION 7. A new section of the Insurers Conservation, Rehabilitation, and Liquidation Law is enacted to read:
"[NEW MATERIAL] FEDERAL HOME LOAN BANKS--RIGHTS REGARDING COLLATERAL--PROCEDURES.--
A. This section governs any secured claim that a federal home loan bank has on an insurer that is subject to a delinquency proceeding under the Insurance Code. To the extent that the provisions of this section conflict with other applicable provisions of law, the provisions of this section shall apply.
B. A receiver shall not void a redemption or repurchase of stock or equity securities made by a federal home loan bank within four months of the commencement of a delinquency proceeding or if such stock or equity securities received prior approval from the receiver; provided that a transfer is voidable if the transfer was made with the actual intent to hinder, delay or defraud an insurer member, the receiver for the insurer member, existing creditors or future creditors.
C. If a federal home loan bank exercises its rights regarding collateral pledged by an insurer member who is subject to a delinquency proceeding, the federal home loan bank shall repurchase any capital stock that is in excess of the amount of federal home loan bank stock that the insurer member is required to hold as a minimum investment, but only to the extent the federal home loan bank in good faith determines that the repurchase is permissible under applicable law, regulations and the federal home loan bank's capital plan and consistent with the federal home loan bank's current capital stock practices that are applicable to its entire membership.
D. Following the appointment of a receiver for an insurer member, the federal home loan bank, within ten business days after a request made by the receiver, shall provide a process and establish time lines for the:
(1) release of collateral that exceeds the value of collateral available for lending, as determined in the advance agreement with the federal home loan bank, that is required to support secured obligations remaining after any repayment of advances;
(2) release of the insurer member's collateral remaining in the federal home loan bank's possession following repayment in full of outstanding secured obligations of the insurer member;
(3) payment of fees owed by the insurer member and the operation of deposits and other accounts of the insurer member with the federal home loan bank; and
(4) possible redemption or repurchase of federal home loan bank stock or excess stock of any class that an insurer member is required to own.
E. Upon a request from the receiver, the federal home loan bank shall provide any available options that an insurer member may exercise to renew or restructure an advance to defer associated prepayment fees, subject to the following:
(1) market conditions;
(2) the terms of the advances outstanding to the insurer member;
(3) the applicable policies of the federal home loan bank; and
(4) compliance with the Federal Home Loan Bank Act and regulations promulgated thereunder.
F. A federal home loan bank shall not be stayed or prohibited from exercising its rights regarding collateral pledged by an insurer member of that federal home loan bank if ten days have passed since the commencement of a delinquency proceeding involving that insurer member."
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