Bill Text: NY S05747 | 2019-2020 | General Assembly | Introduced

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Bill Title: Relates to the indemnification of directors, officers and key persons; and repeals provisions of the not-for-profit corporation law.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced - Dead) 2020-01-08 - REFERRED TO CORPORATIONS, AUTHORITIES AND COMMISSIONS [S05747 Detail]

Download: New_York-2019-S05747-Introduced.html

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                STATE OF NEW YORK
        ________________________________________________________________________

                                          5747

                               2019-2020 Regular Sessions

                    IN SENATE

                                      May 14, 2019
                                       ___________

        Introduced  by  Sen.  COMRIE -- read twice and ordered printed, and when
          printed to be committed to the Committee on Corporations,  Authorities
          and Commissions

        AN  ACT  to amend the not-for-profit corporation law, in relation to the
          indemnification of directors, officers and key persons; and to  repeal
          sections 721, 722 and 723 of the not-for-profit corporation law relat-
          ing thereto

          The  People of the State of New York, represented in Senate and Assem-
        bly, do enact as follows:

     1    Section 1. Sections 721, 722 and 723 of the not-for-profit corporation
     2  law are REPEALED.
     3    § 2. The not-for-profit corporation law is amended  by  adding  a  new
     4  section 721 to read as follows:
     5  § 721. Authorization  for  indemnification of directors, officers or key
     6           persons; insurance.
     7    (a) A corporation may indemnify any director, officer  or  key  person
     8  against expenses, including judgments, fines, excise taxes, amounts paid
     9  in  settlement,  attorneys' fees, court costs and disbursements actually
    10  and necessarily incurred as a result of action  or  proceeding,  or  any
    11  appeal  thereof,  arising  out  of service as a director, officer or key
    12  person (1) who was or is a party or is threatened to be made a party  to
    13  any  threatened,  pending  or  contemplated action or proceeding, or any
    14  appeal thereof, whether civil, criminal, administrative or investigative
    15  (including an action by or in the right of the corporation and/or by its
    16  members, if any, or in the right of any other corporation of  any  kind,
    17  domestic  or  foreign and/or by its members, if any), or by any partner-
    18  ship, joint venture, trust, employee benefit plan or  other  enterprise;
    19  and  (2)  who  has met the standards of conduct set forth in section 717
    20  (duty of directors and officers and key persons) and elsewhere  in  this
    21  article  and  who is entitled to the protection of section 720-a of this
    22  article (liability of directors, officers, key persons and trustees)  to

         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD11695-01-9
        S. 5747                             2

     1  the  extent  applicable,  and (3) with respect to any criminal action or
     2  proceeding, who had reasonable cause to believe that her or his  conduct
     3  was  lawful.  A  director,  officer or key person who may be indemnified
     4  under  this  section shall include a person (i) whose testator or intes-
     5  tate is or was a director, officer or key person of the corporation,  or
     6  (ii)  who is or was serving in any capacity at the request of the corpo-
     7  ration as a director, officer or  key  person  of  another  corporation,
     8  partnership,  joint  venture,  trust,  estate,  employee benefit plan or
     9  other enterprise.
    10    (b) The termination of any action or proceeding, including  an  action
    11  by  or  in  the right of the corporation and/or by its members, by judg-
    12  ment, order, settlement, adjudging liability to the director, officer or
    13  key person, conviction or upon a plea of nolo contendere or  its  equiv-
    14  alent  shall not necessarily create a presumption that the (1) director,
    15  officer or key person did not act in accordance with  the  standards  of
    16  care  set forth in subdivision (a) of this section, and (2) with respect
    17  to any criminal action or proceeding, did not have reasonable  cause  to
    18  believe  that  the  director's,  officer's  or  key person's conduct was
    19  unlawful.
    20    (c) No indemnification shall be made by the corporation if such direc-
    21  tor, officer or key person  shall  have  been  adjudged  to  be  liable,
    22  including  liability  to  the corporation, unless and only to the extent
    23  that the court, in which such action or proceeding  was  brought,  shall
    24  determine, upon application, that, despite the adjudication of liability
    25  but in view of all the circumstances of the case, such director, officer
    26  or  key person is fairly and reasonably entitled to indemnification with
    27  respect to all or any of the judgments,  fines,  excise  taxes,  amounts
    28  paid in settlement, attorneys' fees, court costs and disbursements actu-
    29  ally  and  necessarily  incurred,  because  the director, officer or key
    30  person had made a good faith effort to meet the standards of conduct set
    31  forth in this article.
    32    (d) Expenses, including attorneys' fees,  court  costs  and  disburse-
    33  ments,  incurred by a director, officer or key person of the corporation
    34  or by persons serving at the request of the  corporation  as  directors,
    35  officers  or  key  persons  of  another  corporation, partnership, joint
    36  venture, trust or other enterprise, in defending  any  civil,  criminal,
    37  administrative  or  investigative  action  or proceeding, arising out of
    38  such service, may be paid, if authorized in  accordance  with  paragraph
    39  (e)  of this section, in advance of the final disposition of such action
    40  or proceeding, upon receipt by the  corporation  of  an  undertaking  in
    41  accordance  with article 25 of the civil practice law and rules by or on
    42  behalf of such director, officer or key person to repay such  amount  if
    43  she or he shall ultimately be determined not to be entitled to be indem-
    44  nified as authorized in this section.
    45    (e)  Any indemnification or advancement under this section, except for
    46  one ordered by a court, shall be made only in  the  specific  action  or
    47  proceeding  upon  a determination that indemnification of the present or
    48  former director, officer or key person is proper  in  the  circumstances
    49  because  the  person has met or in the case of an advance can be reason-
    50  ably expected to meet the applicable standard of conduct  set  forth  in
    51  paragraph (a) of this section:
    52    (1) by a majority vote of the directors of the corporation who are not
    53  parties to such action or proceeding, even though less than a quorum;
    54    (2)  by  a  committee of such directors designated by majority vote of
    55  such directors, even though less than a quorum;
        S. 5747                             3

     1    (3) if there are no such directors, or if such directors so direct, by
     2  independent legal counsel in a reasoned written opinion; or
     3    (4) by the members, if any.
     4    (f)  A  right to indemnification or to advancement of expenses arising
     5  under a provision of the certificate of  incorporation,  a  bylaw  or  a
     6  resolution  of  the  board or of a committee thereof shall not be elimi-
     7  nated or impaired by an amendment to the certificate of incorporation to
     8  the bylaws or to the resolution after the occurrence of the act or omis-
     9  sion that is the subject  of  the  civil,  criminal,  administrative  or
    10  investigative action or proceeding for which indemnification or advance-
    11  ment  of  expenses is sought, unless the provision in effect at the time
    12  of such act  or  omission  explicitly  authorizes  such  elimination  or
    13  impairment after such action or omission has occurred.
    14    (g) A corporation may purchase and maintain insurance on behalf of any
    15  person  who  is  or  was a director, officer or key person of the corpo-
    16  ration, or is or was serving at the request  of  the  corporation  as  a
    17  director,  officer  or  key  person of another corporation, partnership,
    18  joint venture, trust, estate,  employee  benefit  or  other  enterprise,
    19  against  any liability asserted against such person and incurred by such
    20  person in any such capacity, or arising out of such person's  status  as
    21  such,  whether  or not the corporation would have the power to indemnify
    22  such person against such liability under this section.
    23    (h) For purposes of this  section,  references  to  "the  corporation"
    24  shall  include,  in addition to a consolidated or surviving corporation,
    25  any constituent corporation, including any constituent of a constituent,
    26  absorbed in a consolidation or merger which, if its  separate  existence
    27  had  continued,  would  have  had  power  and authority to indemnify its
    28  directors, officers or key persons that any  person  who  is  or  was  a
    29  director,  officer  or key person of such constituent corporation, or is
    30  or was serving at the request  of  such  constituent  corporation  as  a
    31  director,  officer  or  key  person of another corporation, partnership,
    32  joint venture, trust, estate, employee benefit plan or other enterprise,
    33  shall stand in the same position under this section with respect to  the
    34  resulting  or  surviving  corporation  as  such  person  would have with
    35  respect to such constituent corporation if its  separate  existence  had
    36  continued.
    37    (i)  The  indemnification  and advancement of expenses provided by, or
    38  granted pursuant to, this section shall continue as to a person who  has
    39  ceased  to  be  a director, officer or key person and shall inure to the
    40  benefit of her or his heirs, executors and administrators if that person
    41  was a director, officer or key person at the time the cause of action or
    42  claim arose or prosecution was threatened or information  or  indictment
    43  was filed.
    44    (j)  For the purpose of this section, a corporation shall be deemed to
    45  have requested a person to serve an  employee  benefit  plan  where  the
    46  performance  by such person of her or his duties to the corporation also
    47  imposes duties on, or otherwise involves services by, such person to the
    48  plan or participants or beneficiaries of the plan; excise taxes assessed
    49  on a person with respect to an employee benefit plan pursuant to  appli-
    50  cable  law  shall  be considered fines; and action taken or omitted by a
    51  person with respect to an employee benefit plan in  the  performance  of
    52  such person's duties for a purpose reasonably believed by such person to
    53  be  in  the  interest  of the participants and beneficiaries of the plan
    54  shall be deemed to be for a purpose which is not  opposed  to  the  best
    55  interests of the corporation.
        S. 5747                             4

     1    §  3. Section 724 of the not-for-profit corporation law, as amended by
     2  chapter 368 of the laws of 1987, paragraph (a) as amended by chapter 549
     3  of the laws of 2013, is renumbered section 722 and amended  to  read  as
     4  follows:
     5  § 722. Indemnification  of directors [and], officers or key persons by a
     6           court.
     7    (a) Notwithstanding the failure of a corporation to provide indemnifi-
     8  cation, and despite any contrary resolution of the board, of a committee
     9  thereof or of the members in the specific case under section  [723]  721
    10  [(Payment  of indemnification other than by court award)] (Authorization
    11  for indemnification of directors, officers or key  persons;  insurance),
    12  indemnification  [shall] may be awarded by a court to the extent author-
    13  ized under section [722 (Authorization for indemnification of  directors
    14  and officers), and paragraph (a) of section 723 (Payment of indemnifica-
    15  tion  other than by court award)] 721 (Authorization for indemnification
    16  of directors, officers or key persons; insurance).  Application therefor
    17  shall be made on notice to the attorney general  and  may  be  made,  in
    18  every case, either:
    19    (1)  In  the  civil  action  or  proceeding in which the expenses were
    20  incurred or other amounts were paid, or
    21    (2) To the supreme court in a separate proceeding, in which  case  the
    22  application  shall set forth the disposition of any previous application
    23  made to any court for the same or similar  relief  and  also  reasonable
    24  cause  for the failure to make application for such relief in the action
    25  or proceeding in which the expenses were incurred or other amounts  were
    26  paid.
    27    (b)  The  application  shall be made in such manner and form as may be
    28  required by the applicable rules of court or, in the absence thereof, by
    29  direction of a court to which it is made. Such application shall be upon
    30  notice to the corporation. The court may  also  direct  that  notice  be
    31  given  at  the  expense of the corporation to the members and such other
    32  persons as it may designate in such manner as it may require.
    33    (c) Where indemnification is sought by judicial action, the court  may
    34  allow  a  person  such  reasonable  expenses, including attorneys' fees,
    35  during the pendency of the litigation as  are  necessary  in  connection
    36  with his defense therein, if the court shall find that the defendant has
    37  by  his  pleadings or during the course of the litigation raised genuine
    38  issues of fact or law.
    39    § 4. Section 725 of the not-for-profit corporation law  is  renumbered
    40  section 723.
    41    §  5.  The  section  heading and subdivision (a) of section 723 of the
    42  not-for-profit corporation law, as amended by chapter 368 of the laws of
    43  1987 and such section as renumbered  by  section  4  of  this  act,  are
    44  amended to read as follows:
    45    Other  provisions  affecting indemnification of directors [and], offi-
    46           cers and key persons.
    47    (a) All expenses incurred in defending a civil or criminal  action  or
    48  proceeding  which  are advanced by the corporation under paragraph [(c)]
    49  (d) of section [723] 721 [(Payment  of  indemnification  other  than  by
    50  court  award)] (Authorization for indemnification of directors, officers
    51  or key persons; insurance) or allowed by a court under paragraph (c)  of
    52  section [724 (Indemnification of directors and officers by a court)] 722
    53  (Indemnification of directors, officers or key persons by a court) shall
    54  be  repaid in case the person receiving such advancement or allowance is
    55  ultimately found, under the procedure set forth in this article, not  to
    56  be  entitled to indemnification or, where indemnification is granted, to
        S. 5747                             5

     1  the extent the expenses so advanced by the corporation or allowed by the
     2  court exceed the indemnification to which he is entitled.
     3    §  6. Section 720-a of the not-for-profit corporation law, as added by
     4  chapter 220 of the laws of 1986, is amended to read as follows:
     5  § 720-a. Liability of directors, officers, key persons and trustees.
     6    Except as provided in sections [seven hundred nineteen] 719 and [seven
     7  hundred twenty] 720 of this chapter, and except any action or proceeding
     8  brought by the attorney general or, in the case of a  charitable  trust,
     9  an  action  or  proceeding against a trustee brought by a beneficiary of
    10  such trust, no person serving without salary or other compensation as  a
    11  director, officer or trustee of a corporation, association, organization
    12  or  trust described in section 501 (c) (3) of the United States internal
    13  revenue code shall be liable to any person other than such  corporation,
    14  association, organization or trust based solely on his or her conduct in
    15  the  execution of such office unless the conduct of such director, offi-
    16  cer or trustee with respect to the person  asserting  liability  consti-
    17  tuted  gross  negligence  or was intended to cause the resulting harm to
    18  the person asserting such liability. For purposes of this section,  such
    19  a director, officer or trustee shall not be considered compensated sole-
    20  ly  by  reason  of  payment  of  his  or her actual expenses incurred in
    21  attending meetings or otherwise in the execution of such office.
    22    § 7. This act shall take effect on January 1, 2020, provided, however,
    23  that rights to indemnification that accrued prior to such effective date
    24  shall be determined by the not-for-profit corporation  law  as  then  in
    25  effect,  unless the director, officer or key person elects to have those
    26  rights or obligations determined by the not-for-profit  corporation  law
    27  as amended by this act.