Bill Text: NY A09446 | 2023-2024 | General Assembly | Introduced

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Bill Title: Relates to the indemnification of directors, officers and key persons; ensures the survival of indemnification in case of a merger or consolidation of a corporation; provides that once a right to indemnification arises, it continues to benefit a former director, officer or key person's and her or his heirs and estate; makes related provisions.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced) 2024-03-14 - referred to corporations, authorities and commissions [A09446 Detail]

Download: New_York-2023-A09446-Introduced.html

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                STATE OF NEW YORK
        ________________________________________________________________________

                                          9446

                   IN ASSEMBLY

                                     March 14, 2024
                                       ___________

        Introduced  by M. of A. HYNDMAN -- read once and referred to the Commit-
          tee 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     2  law are REPEALED.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
    23  the extent applicable, and (3) with respect to any  criminal  action  or
    24  proceeding,  who had reasonable cause to believe that her or his conduct
    25  was lawful. A director, officer or key person  who  may  be  indemnified
    26  under  this  section shall include a person (i) whose testator or intes-

         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD04051-01-3
        A. 9446                             2

     1  tate is or was a director, officer or key person of the corporation,  or
     2  (ii)  who is or was serving in any capacity at the request of the corpo-
     3  ration as a director, officer or  key  person  of  another  corporation,
     4  partnership,  joint  venture,  trust,  estate,  employee benefit plan or
     5  other enterprise.
     6    (b) The termination of any action or proceeding, including  an  action
     7  by  or  in  the right of the corporation and/or by its members, by judg-
     8  ment, order, settlement, adjudging liability to the director, officer or
     9  key person, conviction or upon a plea of nolo contendere or  its  equiv-
    10  alent  shall not necessarily create a presumption that the (1) director,
    11  officer or key person did not act in accordance with  the  standards  of
    12  care set forth in paragraph (a) of this section, and (2) with respect to
    13  any  criminal  action  or  proceeding,  did not have reasonable cause to
    14  believe that the director's,  officer's  or  key  person's  conduct  was
    15  unlawful.
    16    (c) No indemnification shall be made by the corporation if such direc-
    17  tor,  officer  or  key  person  shall  have  been adjudged to be liable,
    18  including liability to the corporation, unless and only  to  the  extent
    19  that  the  court,  in which such action or proceeding was brought, shall
    20  determine, upon application, that, despite the adjudication of liability
    21  but in view of all the circumstances of the case, such director, officer
    22  or key person is fairly and reasonably entitled to indemnification  with
    23  respect  to  all  or  any of the judgments, fines, excise taxes, amounts
    24  paid in settlement, attorneys' fees, court costs and disbursements actu-
    25  ally and necessarily incurred, because  the  director,  officer  or  key
    26  person had made a good faith effort to meet the standards of conduct set
    27  forth in this article.
    28    (d)  Expenses,  including  attorneys'  fees, court costs and disburse-
    29  ments, incurred by a director, officer or key person of the  corporation
    30  or  by  persons  serving at the request of the corporation as directors,
    31  officers or key  persons  of  another  corporation,  partnership,  joint
    32  venture,  trust  or  other enterprise, in defending any civil, criminal,
    33  administrative or investigative action or  proceeding,  arising  out  of
    34  such  service,  may  be paid, if authorized in accordance with paragraph
    35  (e) of this section, in advance of the final disposition of such  action
    36  or  proceeding,  upon  receipt  by  the corporation of an undertaking in
    37  accordance with article 25 of the civil practice law and rules by or  on
    38  behalf  of  such director, officer or key person to repay such amount if
    39  she or he shall ultimately be determined not to be entitled to be indem-
    40  nified as authorized in this section.
    41    (e) Any indemnification or advancement under this section, except  for
    42  one  ordered  by  a  court, shall be made only in the specific action or
    43  proceeding upon a determination that indemnification of the  present  or
    44  former  director,  officer  or key person is proper in the circumstances
    45  because the person has met or in the case of an advance can  be  reason-
    46  ably  expected  to  meet the applicable standard of conduct set forth in
    47  paragraph (a) of this section:
    48    (1) by a majority vote of the directors of the corporation who are not
    49  parties to such action or proceeding, even though less than a quorum;
    50    (2) by a committee of such directors designated by  majority  vote  of
    51  such directors, even though less than a quorum;
    52    (3) if there are no such directors, or if such directors so direct, by
    53  independent legal counsel in a reasoned written opinion; or
    54    (4) by the members, if any.
    55    (f)  A  right to indemnification or to advancement of expenses arising
    56  under a provision of the certificate of  incorporation,  a  bylaw  or  a
        A. 9446                             3

     1  resolution  of  the  board or of a committee thereof shall not be elimi-
     2  nated or impaired by an amendment to the certificate of incorporation to
     3  the bylaws or to the resolution after the occurrence of the act or omis-
     4  sion  that  is  the  subject  of  the civil, criminal, administrative or
     5  investigative action or proceeding for which indemnification or advance-
     6  ment of expenses is sought, unless the provision in effect at  the  time
     7  of  such  act  or  omission  explicitly  authorizes  such elimination or
     8  impairment after such action or omission has occurred.
     9    (g) A corporation may purchase and maintain insurance on behalf of any
    10  person who is or was a director, officer or key  person  of  the  corpo-
    11  ration,  or  is  or  was  serving at the request of the corporation as a
    12  director, officer or key person  of  another  corporation,  partnership,
    13  joint  venture,  trust,  estate,  employee  benefit or other enterprise,
    14  against any liability asserted against such person and incurred by  such
    15  person  in  any such capacity, or arising out of such person's status as
    16  such, whether or not the corporation would have the power  to  indemnify
    17  such person against such liability under this section.
    18    (h)  For  purposes  of  this  section, references to "the corporation"
    19  shall include, in addition to a consolidated or  surviving  corporation,
    20  any constituent corporation, including any constituent of a constituent,
    21  absorbed  in  a consolidation or merger which, if its separate existence
    22  had continued, would have had  power  and  authority  to  indemnify  its
    23  directors,  officers  or  key  persons  that  any person who is or was a
    24  director, officer or key person of such constituent corporation,  or  is
    25  or  was  serving  at  the  request  of such constituent corporation as a
    26  director, officer or key person  of  another  corporation,  partnership,
    27  joint venture, trust, estate, employee benefit plan or other enterprise,
    28  shall  stand in the same position under this section with respect to the
    29  resulting or surviving  corporation  as  such  person  would  have  with
    30  respect  to  such  constituent corporation if its separate existence had
    31  continued.
    32    (i) The indemnification and advancement of expenses  provided  by,  or
    33  granted  pursuant to, this section shall continue as to a person who has
    34  ceased to be a director, officer or key person and shall  inure  to  the
    35  benefit of her or his heirs, executors and administrators if that person
    36  was a director, officer or key person at the time the cause of action or
    37  claim  arose  or prosecution was threatened or information or indictment
    38  was filed.
    39    (j) For the purpose of this section, a corporation shall be deemed  to
    40  have  requested  a  person  to  serve an employee benefit plan where the
    41  performance by such person of her or his duties to the corporation  also
    42  imposes duties on, or otherwise involves services by, such person to the
    43  plan or participants or beneficiaries of the plan; excise taxes assessed
    44  on  a person with respect to an employee benefit plan pursuant to appli-
    45  cable law shall be considered fines; and action taken or  omitted  by  a
    46  person  with  respect  to an employee benefit plan in the performance of
    47  such person's duties for a purpose reasonably believed by such person to
    48  be in the interest of the participants and  beneficiaries  of  the  plan
    49  shall  be  deemed  to  be for a purpose which is not opposed to the best
    50  interests of the corporation.
    51    § 3. Section 724 of the not-for-profit corporation law, as amended  by
    52  chapter 368 of the laws of 1987, paragraph (a) as amended by chapter 549
    53  of  the  laws  of 2013, is renumbered section 722 and amended to read as
    54  follows:
    55  § 722. Indemnification of directors [and], officers or key persons by  a
    56           court.
        A. 9446                             4

     1    (a) Notwithstanding the failure of a corporation to provide indemnifi-
     2  cation, and despite any contrary resolution of the board, of a committee
     3  thereof  or  of the members in the specific case under section [723] 721
     4  [(Payment of indemnification other than by court award)]  (Authorization
     5  for  indemnification  of directors, officers or key persons; insurance),
     6  indemnification [shall] may be awarded by a court to the extent  author-
     7  ized  under section [722 (Authorization for indemnification of directors
     8  and officers), and paragraph (a) of section 723 (Payment of indemnifica-
     9  tion other than by court award)] 721 (Authorization for  indemnification
    10  of directors, officers or key persons; insurance).  Application therefor
    11  shall  be  made  on  notice  to the attorney general and may be made, in
    12  every case, either:
    13    (1) In the civil action or  proceeding  in  which  the  expenses  were
    14  incurred or other amounts were paid, or
    15    (2)  To  the supreme court in a separate proceeding, in which case the
    16  application shall set forth the disposition of any previous  application
    17  made  to  any  court  for the same or similar relief and also reasonable
    18  cause for the failure to make application for such relief in the  action
    19  or  proceeding in which the expenses were incurred or other amounts were
    20  paid.
    21    (b) The application shall be made in such manner and form  as  may  be
    22  required by the applicable rules of court or, in the absence thereof, by
    23  direction of a court to which it is made. Such application shall be upon
    24  notice  to  the  corporation.  The  court may also direct that notice be
    25  given at the expense of the corporation to the members  and  such  other
    26  persons as it may designate in such manner as it may require.
    27    (c)  Where indemnification is sought by judicial action, the court may
    28  allow a person such  reasonable  expenses,  including  attorneys'  fees,
    29  during  the  pendency  of  the litigation as are necessary in connection
    30  with his defense therein, if the court shall find that the defendant has
    31  by his pleadings or during the course of the litigation  raised  genuine
    32  issues of fact or law.
    33    §  4.  Section 725 of the not-for-profit corporation law is renumbered
    34  section 723.
    35    § 5. The section heading and subdivision (a) of  section  723  of  the
    36  not-for-profit corporation law, as amended by chapter 368 of the laws of
    37  1987  and  such  section  as  renumbered  by  section 4 of this act, are
    38  amended to read as follows:
    39    Other provisions affecting indemnification of directors  [and],  offi-
    40           cers and key persons.
    41    (a)  All  expenses incurred in defending a civil or criminal action or
    42  proceeding which are advanced by the corporation under  paragraph  [(c)]
    43  (d)  of  section  [723]  721  [(Payment of indemnification other than by
    44  court award)] (Authorization for indemnification of directors,  officers
    45  or  key persons; insurance) or allowed by a court under paragraph (c) of
    46  section [724 (Indemnification of directors and officers by a court)] 722
    47  (Indemnification of directors, officers or key persons by a court) shall
    48  be repaid in case the person receiving such advancement or allowance  is
    49  ultimately  found, under the procedure set forth in this article, not to
    50  be entitled to indemnification or, where indemnification is granted,  to
    51  the extent the expenses so advanced by the corporation or allowed by the
    52  court exceed the indemnification to which he is entitled.
    53    §  6.  Section 720-a of the not-for-profit corporation law, as amended
    54  by chapter 445 of the laws of 2019, is amended to read as follows:
    55  § 720-a. Liability of directors, officers, trustees and key persons.
        A. 9446                             5

     1    Except as provided in sections [seven hundred nineteen] 719 and [seven
     2  hundred twenty] 720 of this chapter, and except any action or proceeding
     3  brought by the attorney general or, in the case of a  charitable  trust,
     4  an  action  or  proceeding against a trustee brought by a beneficiary of
     5  such  trust, no person serving without salary or other compensation as a
     6  director, officer, key person or trustee of a corporation,  association,
     7  organization  or  trust  described  in section 501 (c) (3) of the United
     8  States internal revenue code shall be liable to any  person  other  than
     9  such corporation, association, organization or trust based solely on his
    10  or  her  conduct  in  the execution of such office unless the conduct of
    11  such director, officer, key person or trustee with respect to the person
    12  asserting liability constituted gross  negligence  or  was  intended  to
    13  cause  the  resulting  harm  to the person asserting such liability. For
    14  purposes of this section, such a director, officer, key person or  trus-
    15  tee  shall  not be considered compensated solely by reason of payment of
    16  his or her actual expenses incurred in attending meetings  or  otherwise
    17  in the execution of such office.
    18    § 7. The rights to indemnification that accrued prior to the effective
    19  date  of  this act shall be determined by the not-for-profit corporation
    20  law  as  then in effect,   unless the director, officer  or  key  person
    21  elects  to  have  those rights or obligations determined by the not-for-
    22  profit corporation law as amended by this act.
    23    § 8. This act shall take effect on January 1, 2024.