(a) In the case of consolidation the separate existence of the constituent associations shall cease as of the effective date specified in the agreement and the consolidated association shall succeed, without other transfer, to all rights and property of the constituent associations, and shall be obliged to discharge all debts and other obligations of such associations in the same manner and to the same extent as if they had been incurred originally by such consolidated association.

(b) In the case of merger the separate existence of the merged association (s) shall cease as of the effective date specified in the agreement and the continuing association shall succeed, without other transfer, to all rights and property of the merged association(s) and shall be obligated to discharge all the debts and other obligations of such association(s) in the same manner and to the same extent as if they had been incurred originally by such continuing association.

(c) In the case of either consolidation or merger, appropriate instruments of transfer may be executed if thought necessary to perfect title of record. § 50.403

Supervision of consolidation

or merger.

It shall be the duty of the Bank to supervise the consolidation or merger to assure that the terms and conditions of the agreement are carried into effect. VOLUNTARY LIQUIDATION OF ASSOCIATIONS § 50.411 Resolution of board of direc

tors.

Subject to the approval of the board of directors of the Bank and of the Governor, an association may be placed in voluntary liquidation by resolution of its board of directors. The resolution shall authorize and direct the Bank to appoint and fix the compensation of a liquidating agent for the association and to remove such liquidating agent at will and appoint a successor; and shall vest in the liquidating agent full and complete authority (without any reservation of power to the association board) to liquidate the association subject to the direction and supervision of the Bank. § 50.412

Distribution of assets.

Subject to such direction and supervision, the liquidating agent shall convert

the association's assets into cash, pay its obligations, and distribute its remaining assets to the holders of class A and class B stock in accordance with their liquidation preference rights.

§ 50.413 Methods of converting assets into cash.

The loan assets of the association may be converted into cash by either of the following methods:

(a) By their collection.

(b) By the sale of the loan assets of the association to another association or associations upon such terms and conditions as may be approved by the board of directors of the Bank and by the Governor, provided that immediately upon completion of such sale the liquidating association will be able to pay liquidating dividends of not less than $5.00 per share on all its outstanding stock. Each borrower whose loan is sold to another association shall be required to own class B stock in the purchasing association in the amount of $5.00 for each $100 or fraction thereof of the unpaid balance of such loan and the liquidating association shall make payment to the purchasing association for such stock out of the borrower's liquidating dividends.

(c) By any other method authorized by law.

PART 52-PARTICULAR PRODUCTION CREDIT ASSOCIATIONS

Sec. 52.1

Supervision by Federal intermediate credit bank of associations in First Farm Credit District.

52.2 Completion of credit forms and making of record searches by production credit associations in the Third Farm Credit District.

§ 52.1 Supervision by Federal intermediate credit bank of associations in First Farm Credit District.

Wherever in Part 50 of this chapter authority is conferred upon the president of the bank, such authority with respect to the associations in the First Farm Credit District may be exercised by either the President or the Executive Vice President of the Federal Intermediate Credit Bank of Springfield.

(Sec. 6, 47 Stat. 14, as amended, secs. 20, 23, 60, 48 Stat. 259, as amended, 261, as amended, 266, as amended; 12 U. S. C. 665, 1131d, 1131g, 1138) [21 F. R. 10331, Dec. 27, 1956]

70.162 Allocations of surplus and contingency reserves; district banks.

70.163 Same; Central Bank.

70.164 Same; lien on allocated surplus. 70.165 Same; cancellation and retirement of allocations of surplus of defaulting borrowers.

70.165a Cancellation and retirement of stock and other equities of borrower in liquidation or dissolution.

AUTHORITY: §§ 70.1 to 70.165a issued under sec. 8, 46 Stat. 14, as amended, sec. 6, 47 Stat. 14, as amended, secs. 34, 38, 41, 48 Stat. 262, 264, as amended; 12 U.S.C. 665, 1134c, 1134j, 1141f. Additional authority is cited in parentheses following the sections affected.

SOURCE: §§ 70.1 to 70.165a appear at 26 F.R. 9009, Sept. 26, 1961; 26 F.R. 9382, Oct. 5, 1961, except as otherwise noted.

NOTE: That part of each section number which follows the decimal is the same as the section number of the corresponding provision in the Manual for Banks for Cooperatives.

Subpart-Cooperatives Eligible for

Loans

§ 70.1 Statutory provisions.

Section 15(a) of the Agricultural Marketing Act, as amended (12 U.S.C. 1141j (a)), reads as follows:

As used in this Act, the term "cooperative association" means any association in which farmers act together in processing, preparing for market, handling, and/or marketing the farm products of persons so engaged, and also means any association in which farmers act together in purchasing, testing, grading,

processing, distributing, and/or furnishing farm supplies and/or farm business services: Provided, however, That such associations are operated for the mutual benefit of the members thereof as such producers or purchasers and conform to one or both of the following requirements:

First. That no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein; and

Second. That the association does not pay dividends on stock or membership capital in excess of 8 per centum per annum. And in any case to the following:

Third. That the association shall not deal in farm products, farm supplies, and farm business services with or for nonmembers in an amount greater in value than the total amount of such business transacted by it with or for members. All business transacted by any cooperative association for or on behalf of the United States or any agency or instrumentality thereof shall be disregarded in determining the volume of member and nonmember business transacted by such association.

§ 70.2 Determination of eligibility.

Whether a loan may be made to a cooperative association by a bank for cooperatives depends upon two factors: First, does the association meet the eligibility requirements set forth in § 70.1; and second, is the association primarily engaged in one or more of the functions listed in § 70.1.

§ 70.3 Effect on eligiblity of handling other than farm supplies.

The banks for cooperatives are authorized to make loans to eligible farmers' cooperative associations to enable them to handle goods, other than farm supplies, used on farms and in farm homes only when the making of such loans is directly connected with and reasonably necessary for the performance by such an association of its primary functions falling within the scope of the purposes broadly described in § 70.1. The authority for the banks for cooperatives to make such loans is contingent upon an administrative determination, based upon reasonably convincing evidence, that the handling of such goods by a cooperative is incidental to and necessary for the effectuation of the cooperative's principal activities of processing, preparing for market, handling, or marketing farm products, or purchasing, testing, grading, processing, distributing, or furnishing farm supplies, or furnishing farm business services. If it should

appear, in connection with any application, that the handling of such goods by the association had become, or by virtue of the credit sought might reasonably be expected to become, dominant over the functions which confer the initial eligibility, the loan should not be made. § 70.4 Policy determination required.

Before a loan may be made to an eligible association for an eligible purpose, it must be determined that the loan would be in furtherance of the policy declared in section 1 of the Agricultural Marketing Act, as amended (12 U.S.C. 1141), and that the association applying for the loan has an organization, management, and business policies of such character as to insure the reasonable safety of the loan and the furtherance of such policy (12 U.S.C. 1141e (b)). § 70.5 Required voting control in cooperative associations; generally.

Loans may not be made to a cooperative association unless at least 90 percent of the voting media are held by either producers (individuals, partnerships, or corporations), or cooperative associations as defined in § 70.1, except as provided in § 70.7.

members whether farmers or not, and the business done with members and with nonmembers should be computed accordingly.

§ 70.9

Same; business with members that are not producers or cooperatives.

In determining eligibility, all business transacted with members that are neither producers, nor cooperative associations as defined in § 70.1, shall be deemed to be nonmember business. § 70.10 Same; business through separate marketing and supply departments.

Where an association maintains separate marketing and farm supply departments and where it acquires products from its members for marketing and in turn sells those products (either processed or in the same form) to other members through its supply department, two distinct functions are involved and the volume thereof should be included in the business done by both the marketing and farm supply departments in computing its volume of member and nonmember business.

§ 70.11 Same; incidental activities.

If an association is predominately either a marketing or a purchasing association and if the purchasing or marketing activities are occasional and incidental to its main function, they should be disregarded in computing member and nonmember business.

§ 70.12 Farm supplies.

The term "farm supplies" includes all supplies that are normally adapted to the furtherance of the production of farm products or in the conduct of farm operations. Items such as oil and gasoline and lumber and other building materials are "farm supplies" when they are acquired by farmers in the furtherance of farm operations. Clothing, groceries, furniture, and other household articles are not so directly identified with such production or operations as to entitle them to be classified as "farm supplies."

§ 70.13 Eligibility of certain specific activities; telephone companies.

A farmers' cooperative telephone company, furnishing a "farm business service" and otherwise eligible, may borrow from a bank for cooperatives, subject to the following additional restriction. In considering the eligibility of such an as

sociation from the standpoint of member and nonmember business, it should be borne in mind that at least 50 percent of its gross income must be derived from farmer members; therefore, the bank should determine whether the company may be required by State law to serve the public generally. If it may be so required, no loan should be made. An exception to this policy might be an isolated case where the type of territory served by such a cooperative might preclude the possibility of nonfarmer business becoming predominant. In such circumstances and if the association may not be required by state authorities to extend its operations to other areas, a loan need not be rejected merely because the cooperative is required to serve the general public.

Subpart-Loan Policies

§ 70.20 Unconditional liability of bor

rower.

A bank for cooperatives is not authorized to make a loan under any conditions where the obligation of the maker to pay such indebtedness could be regarded as being other than unqualified and unconditional, regardless of the nature of the security therefor or other special or unusual conditions.

§ 70.22 Lending limits of district banks.

Except with the written approval of the Director of Cooperative Bank Service, the lending limits of each district bank for cooperatives are hereby fixed so that loans to any one borrower outstanding at any time (exclusive of participations therein sold to others) may not exceed the following percentages of the net worth of the bank as of the close of the preceding fiscal year:

(a) Facility loans, 20 percent;

(b) Operating capital loans, 20 percent;

(c) Commodity loans (excluding loans secured by Commodity Credit Corporation documents), 35 percent;

(d) The sum of facility and operating capital loans, 20 percent;

(e) The sum of facility, operating capital, and commodity loans (excluding loans secured by Commodity Credit Corporation documents), 35 percent; Provided, however, That a loan made within established limits, but which becomes excessive by virtue of a subsequent decrease in the net worth of the bank, may be retained and liquidated in an orderly manner.

§ 70.23

Lending limits of the Central Bank for Cooperatives.

The total loans from the Central Bank for Cooperatives to any one farmers' cooperative association, exclusive of commodity loans, or of operating capital loans to finance commodities within the limits of Government price support programs, shall not at any time exceed 25 percent of the net worth of the bank. § 70.24 Limitation on lending operations of Central Bank.

Pursuant to the provisions of law that any regulation affecting the lending operations of the banks for cooperatives shall be consistent with the principle that the Central Bank for Cooperatives shall make loans only in cases where it