Hoaorabie 0. P. Lockhart
Board of,Insurance hmissfoners
Austin,   Texas

Dear Sir:                          opinion Ho. o-3979
                                   Rer The duties of a receiver and
                                   the fuuotion of the Attorney General.

        Your request for nn eplnion has been reoeived by this department.
Delow we net out the body of your letter.

"Thfs letter will be acco~~~ied by a 26-page report of the investigation
of theaffair. of the Southern Underwriters and the United Employers Cas-
ual* Compauy of Houston, Texas, the latter now in reoeivership and in
process of liquidationby uur Consemator, Mr. Vi11 0. Knox.

"Please study this report and, assuming the findings oan be substantiated
by legal, competent proof, pleaee give us your opinion upon the follwing
points in ocnnection with the matter refleoted by suoh report.

"1. Was the aapital stock of the United Employers Casualy Company 'sub-
scribed in good faith and fully paid for' a6 required by Artioles 4991
and 49931

“2.  Do you think it lawful and proper for your Department to institute
and prosecute a oivil aotion for the recovery of $ZgO,OOO subsoribed
oapital atook, and for such other srprsas may be recovered from+hose
who appear to be liable therefor asreflected by tie report and as may
be found by further imvestigatiom, such suit to be filed on~behalf of
the State and this Board for the benefit of the oreditors of the United
Ymployers Casualty Company?'

“3.  Do you find that the provisd.ws of any ariminal'or penal laws of
the State have been violated by any persons in the transactions reflect-
ed by the report, ,and if so, 611 your Department alone, or in oonjunc-
tion with the proper subordinate,>er local prosecuting atterneys, insti-
tute and prosecuteto a final eonelusion the meoessary criminal proceed-
ings?"

        A epitome of tho report mentioned im your letter, in so far as
it oonoerns our question, is as follO~.S: A, and associates, proposed to
organize and promote Y insurance Company. B, the principa, stockholder
in X Insurance Company, alledgedly leans A, and associates, money which
is deposited in a bank amd represented to be subscribed and paid-up
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Hon. 0. Y. Loakhart.page 2 (O-3979)



oapital stook of i-hoY Iusuranoe Compauy. On the b@mia of aa affidavit
sipsd by the bank presidst thnt tha msnsy bsloagsd ts and was at ihe
disposal of Y Insurance Company, ths latter companyis granteda ohartsr
and a psrmitto do businessin thir Stat.. A wd assosiatss than agres
to b\l(y a building from X Insuranss Cs8~.     (h that suy day, Y aonpany
withdraws   by oheok the entire au~unt pariously on dopssit. The oheok
Is sndorssd by B.


        Your questionnusberad on iaquirssif X wmpa8y.s sapital#took
was "subsoribsdin good faith and fully paid for" as required by statutory
provisions. It is the considered opinion of this doprtmwt that the ques-
tion is one of oaot, and, in aooordana ulth doparWsntal pliq, ~6 must
doolineto pass upOa it.

        Your question nuukred two rsqueststhis deparknt's opinion as
uhether or not it would bs lawful and proper for tha Attomy   Caneral to
instituts oiril prooeedingr, looking ts ths rowvery  of the alleged oap-
ital stook of the saw     for the bsnefit sf the wsditors of the defunot
oonoern. We have bssn unable to find upr statutory prmision ossmanding
or authorizing this dspartuent to intsrasds oa behalf of tho orsditers
of a defunctinmrauoo oompsw. This iunotionrould appsar to ba the.
positive duty of the Liquidator prsvidsdfor in Artiols M)680, Vornon*s
Annotatsd Civil Statutss. The psrt$nrt,    part of that Article reads:

'The said reosiror and his mooemors  in offiss sbll he wstod v opsr-
ation of law dth the title ts all of the propsrty, oontraots and rights
of aotion of sush insursri . . .

"Upon taking possession of the assets of a delinquent insurer the reoeiv-
lr shall, subjoot te the direotion of the osurt. imnediatoly proaeed to
oonduct the business of the inqurer, or to take suoh step8 as may bs nss-
sssary to oonserVe the assets and proteot the rightsof pelioyholdsrs
and olaimants for the purpom of liquidating, rehabilitating, roinauring,
reorgsnixing,or oomervimg the affsirsof the insurer. . . 9,

        the oapital stock of any oorporatisn is irrevocably dedioated to
the satirfaotion of all the Obligation6 the oonsarn My assuue. It is
the ummt of money oontributedby the shu6 omers      66 the flnanoialhEi
for the proseoution of tha oorporats business. It is for the soourity of
ths publis rho ahsose to transaot buSine86 with that prtioulu oonoarn.
'Iheliquidator or nseivsd is ohargod dth it8 oontroland adninistration
for the banefit of ury olaimant or oroditm of ths oorparation. The
Stat0 as a gorsmusntal agsn0y has no fimatoialinterest in *s oapital
stock. I%O rights of ths individual 'alai-f will hs adequatsly pratsot-
ad in this situation by the 8tatutory liquidator.
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  Hon. c. “. Lo&hart, p*ge 3 (O-3978)



          Y&r third question inquires if any ariminal or penal
  statute has bean violated. If so, you ask if this department will
  conduat,a prosecution. We advise that this should be discussed with
  the ~local prosecuting attorney who is expressly charged by statwte
  pi& the conduct of any ariminal proseoution.

                                             Yours very truly

                                         ArlTORNiYGENEBAL OF TEDS

                                        ~% /a/ lb* J. 'Fanning

                                               Wm. J. Fhnning
                                                     Assi slant
                                        % /8/ Gnlndy m.1lia.m

                                               Grundy   Williams




                                          Opinion Conmittee
                                                ByBWB
                                                ohairman
