Bill Text: IL HB5160 | 2017-2018 | 100th General Assembly | Engrossed

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Bill Title: Amends the Illinois Insurance Code. Creates the Domestic Stock Company Division Article in the Code. Provides that a domestic stock company may divide into 2 or more resulting companies pursuant to a plan of division. Contains provisions concerning the contents of the plan of division, approval of the plan of division by the Director of Insurance, effects of a division, certificates of division, liabilities, and shareholder rights. Makes conforming changes in provisions concerning mergers and consolidations.

Spectrum: Slight Partisan Bill (Democrat 3-1)

Status: (Failed) 2019-01-08 - Session Sine Die [HB5160 Detail]

Download: Illinois-2017-HB5160-Engrossed.html

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HB5160 Engrossed LRB100 19846 SMS 35122 b
AN ACT concerning regulation.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 5. The Illinois Insurance Code is amended by adding
Article IIB and by changing Section 156 as follows:
(215 ILCS 5/Art. IIB heading new)
ARTICLE IIB. DOMESTIC STOCK COMPANY DIVISION
(215 ILCS 5/35B-1 new)
Sec. 35B-1. Short title. This Article may be cited as the
Domestic Stock Company Division.
(215 ILCS 5/35B-5 new)
Sec. 35B-5. Purpose. The purpose of this Article is to
stimulate economic development in the State of Illinois by
creating and sustaining employment opportunities and
increasing and sustaining taxable revenue, through improving
the competitive position of domestic stock companies,
maintaining the competitiveness of this State as a state of
domicile for domestic stock companies, and enhancing the
desirability of this State as a jurisdiction of domicile for
newly incorporating and existing foreign stock companies.

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(215 ILCS 5/35B-10 new)
Sec. 35B-10. Definitions. As used in this Article:
"Assets" means all assets or property, whether real,
personal or mixed, tangible or intangible, and any right or
interest therein, including all rights under contracts and
other agreements.
"Capital" means the capital stock component of statutory
surplus, as defined in the National Association of Insurance
Commissioners Accounting Practices and Procedures Manual,
version effective January 1, 2001, and subsequent revisions.
"Divide" or "division" means the act by operation of law by
which a domestic stock company divides into 2 or more resulting
companies in accordance with a plan of division and this
Article;
"Dividing company" means a domestic stock company that
approves a plan of division pursuant to Section 35B-20;
"Domestic stock company" means a domestic stock company
transacting or being organized to transact any of the kinds of
insurance business enumerated in Section 4.
"Liability" means a liability or obligation of any kind,
character, or description, whether known or unknown, absolute
or contingent, accrued or unaccrued, disputed or undisputed,
liquidated or unliquidated, secured or unsecured, joint or
several, due or to become due, determined, determinable, or
otherwise.
"New company" means a domestic stock company that is

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created by a division occurring on or after the effective date
of this amendatory Act of the 100th General Assembly.
"Plan of division" means a plan of division approved by a
dividing company in accordance Section 35B-20.
"Policy liability" means a liability as defined in this
Section arising out of or related to an insurance policy,
contract of insurance, or reinsurance agreement.
"Recorder" means the office of the recorder of the county
where the principal office of a domestic stock company is
located.
"Resulting company" means a domestic stock company created
by a division or a dividing company that survives a division.
"Shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial
owner of shares to the extent of the rights granted by a
nominee certificate on file with a corporation.
"Sign" or "signature" includes a manual, facsimile, or
conformed or electronic signature.
"Surplus" means total statutory surplus less capital,
calculated in accordance with the National Association of
Insurance Commissioners Accounting Practices and Procedures
Manual, version effective January 1, 2001, and subsequent
revisions.
"Transfer" includes an assignment, assumption, conveyance,
sale, lease, encumbrance, including a mortgage or security
interest, gift, or transfer by operation of law.

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(215 ILCS 5/35B-15 new)
Sec. 35B-15. Plan of division.
(a) A domestic stock company may, in accordance with the
requirements of this Article, divide into 2 or more resulting
companies pursuant to a plan of division.
(b) Each plan of division shall include:
(1) the name of the domestic stock company seeking to
divide;
(2) the name of each resulting company that will be
created by the proposed division;
(3) for each new company that will be created by the
proposed division, a copy of its:
(A) proposed articles of incorporation;
(B) proposed bylaws; and
(C) the kinds of insurance business enumerated in
Section 4 that the new company would be authorized to
conduct;
(4) the manner of allocating between or among the
resulting companies:
(A) the assets of the domestic stock company that
will not be owned by all of the resulting companies as
tenants in common pursuant to Section 35B-35; and
(B) the liabilities of the domestic stock company,
including policy liabilities, to which not all of the
resulting companies will become jointly and severally

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liable pursuant to paragraph (3) of subsection (a) of
Section 35B-40;
(5) the manner of distributing shares in the new
companies to the dividing company or its shareholders;
(6) a reasonable description of the liabilities,
including policy liabilities, and items of capital,
surplus, or other assets, in each case, that the domestic
stock company proposes to allocate to each resulting
company, including specifying the reinsurance contract,
reinsurance coverage obligations, and related claims that
are applicable to those policies;
(7) all terms and conditions required by the laws of
this State or the articles of incorporation and bylaws of
the domestic stock company;
(8) evidence demonstrating that the interest of all
classes of policyholders of the dividing company will be
properly protected; and
(9) all other terms and conditions of the division.
Nothing in this subsection (b) shall expand or reduce the
allocation and assignment of reinsurance as stated in the
reinsurance contract.
(c) If the domestic stock company survives the division,
the plan of division shall include, in addition to the
information required by subsection (b):
(1) all proposed amendments to the dividing company's
articles of incorporation and bylaws, if any;

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(2) if the dividing company desires to cancel some, but
less than all, shares in the dividing company, the manner
in which it will cancel such shares; and
(3) if the dividing company desires to convert some,
but less than all, shares in the dividing company into
shares, securities, obligations, money, other property,
rights to acquire shares or securities, or any combination
thereof, a statement disclosing the manner in which it will
convert the shares.
(d) If the domestic stock company does not survive the
proposed division, the plan of division shall contain, in
addition to the information required by subsection (b), the
manner in which the dividing company will cancel or convert
shares in the dividing company into shares, securities,
obligations, money, other property, rights to acquire shares or
securities, or any combination thereof.
(e) Terms of a plan of division may be made dependent on
facts objectively ascertainable outside of the plan of
division.
(f) A dividing company may amend a plan of division in
accordance with any procedures set forth in the plan of
division or, if no such procedures are set forth in the plan of
division, in any manner determined by the board of directors of
the dividing company, except that a shareholder that was
entitled to vote on or consent to approval of the plan of
division is entitled to vote on or consent to any amendment of

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the plan of division that will change:
(1) the amount or kind of shares, securities,
obligations, money, other property, rights to acquire
shares or securities, or any combination thereof, to be
received by any of the shareholders of the dividing company
under the plan of division;
(2) the articles of incorporation or bylaws of any
resulting company that will be in effect when the division
becomes effective, except for changes that do not require
approval of the shareholders of the resulting company under
its articles of incorporation or bylaws; or
(3) any other terms or conditions of the plan of
division, if the change would adversely affect the
shareholders in any material respect.
(g) A dividing company may abandon a plan of division after
it has approved the plan of division without any action by the
shareholders and in accordance with any procedures set forth in
the plan of division or, if no such procedures are set forth in
the plan of division, in a manner determined by the board of
directors of the dividing company.
(h) A dividing company may abandon a plan of division after
it has filed a certificate of division with the recorder by
filing with the recorder, with concurrent copy to the director,
a certificate of abandonment signed by the dividing company.
The certificate of abandonment shall be effective on the date
it is filed with the recorder and the dividing company shall be

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deemed to have abandoned its plan of division on such date.
(i) A dividing company may not abandon or amend its plan of
division once the division becomes effective.
(215 ILCS 5/35B-20 new)
Sec. 35B-20. Requirements of a plan of division.
(a) A domestic stock company shall not file a plan of
division with the Director unless the plan of division has been
approved in accordance with:
(1) any applicable provisions of its articles of
incorporation and bylaws; and
(2) all laws of this State governing the internal
affairs of a domestic stock company that provide for
approval of a merger.
(b) If any provision of the articles of incorporation or
bylaws of a domestic stock company requires that a specific
number or percentage of board of directors or shareholders
approve the proposal or adoption of a plan of merger, or
imposes other special procedures for the proposal or adoption
of a plan of merger, such domestic stock company shall adhere
to such provision in proposing or adopting a plan of division.
If any provision of the articles of incorporation or bylaws of
a domestic stock company is amended, such amendment shall
thereafter apply to a division only in accordance with its
express terms.

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(215 ILCS 5/35B-25 new)
Sec. 35B-25. Plan of division approval.
(a) A division shall not become effective until it is
approved by the Director after reasonable notice and a public
hearing, if the notice and hearing are deemed by the Director
to be in the public interest. The Director shall hold a public
hearing if one is requested by the dividing company. A hearing
conducted under this Section shall be conducted in accordance
with Article 10 of the Illinois Administrative Procedure Act.
(b) The Director shall approve a plan of division unless
the Director finds that:
(1) the interest of any class of policyholder or
shareholder of the dividing company will not be properly
protected;
(2) each new company created by the proposed division,
except a new company that is a nonsurviving party to a
merger pursuant to subsection (b) of Section 156, would be
ineligible to receive a license to do insurance business in
this State pursuant to Section 5;
(3) the proposed division violates a provision of the
Uniform Fraudulent Transfer Act;
(4) the division is being made for purposes of
hindering, delaying, or defrauding any policyholders or
other creditors of the dividing company;
(5) one or more resulting companies will not be solvent
upon the consummation of the division; or

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(6) the remaining assets of one or more resulting
companies will be, upon consummation of a division,
unreasonably small in relation to the business and
transactions in which the resulting company was engaged or
is about to engage.
(c) In determining whether the standards set forth in
paragraph (3) of subsection (b) have been satisfied, the
Director shall only apply the Uniform Fraudulent Transfer Act
to a dividing company in its capacity as a resulting company
and shall not apply the Uniform Fraudulent Transfer Act to any
dividing company that is not proposed to survive the division.
(d) In determining whether the standards set forth in
paragraphs (3), (4), (5), and (6) of subsection (b) have been
satisfied, the Director may consider all proposed assets of the
resulting company, including, without limitation, reinsurance
agreements, parental guarantees, support or keep well
agreements, or capital maintenance or contingent capital
agreements, in each case, regardless of whether the same would
qualify as an admitted asset as defined in Section 3.1.
(e) In determining whether the standards set forth in
paragraph (3) of subsection (b) have been satisfied, with
respect to each resulting company, the Director shall, in
applying the Uniform Fraudulent Transfer Act, treat:
(1) the resulting company as a debtor;
(2) liabilities allocated to the resulting company as
obligations incurred by a debtor;

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(3) the resulting company as not having received
reasonably equivalent value in exchange for incurring the
obligations; and
(4) assets allocated to the resulting company as
remaining property.
(f) All information, documents, materials, and copies
thereof submitted to, obtained by, or disclosed to the Director
in connection with a plan of division or in contemplation
thereof, including any information, documents, materials, or
copies provided by or on behalf of a domestic stock company in
advance of its adoption or submission of a plan of division,
shall be confidential and shall be subject to the same
protection and treatment in accordance with Section 131.14d as
documents and reports disclosed to or filed with the Director
pursuant to Section 131.14b until such time, if any, as a
notice of the hearing contemplated by subsection (a) is issued.
(g) From and after the issuance of a notice of the hearing
contemplated by subsection (a), all business, financial, and
actuarial information that the domestic stock company requests
confidential treatment, other than the plan of division, shall
continue to be confidential and shall not be available for
public inspection and shall be subject to the same protection
and treatment in accordance with Section 131.14d as documents
and reports disclosed to or filed with the Director pursuant to
Section 131.14b.
(h) All expenses incurred by the Director in connection

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with proceedings under this Section, including expenses for the
services of any attorneys, actuaries, accountants, and other
experts as may be reasonably necessary to assist the Director
in reviewing the proposed division, shall be paid by the
dividing company filing the plan of division. A dividing
company may allocate expenses described in this subsection in a
plan of division in the same manner as any other liability.
(i) If the Director approves a plan of division, the
Director shall issue an order that shall be accompanied by
findings of fact and conclusions of law.
(j) The conditions in this Section for freeing one or more
of the resulting companies from the liabilities of the dividing
company and for allocating some or all of the liabilities of
the dividing company shall be conclusively deemed to have been
satisfied if the plan of division has been approved by the
Director in a final order that is not subject to further
appeal.
(215 ILCS 5/35B-30 new)
Sec. 35B-30. Certificate of division.
(a) After a plan of division has been adopted and approved,
an officer or duly authorized representative of the dividing
company shall sign a certificate of division.
(b) The certificate of division shall set forth:
(1) the name of the dividing company;
(2) a statement disclosing whether the dividing

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company will survive the division;
(3) the name of each new company that will be created
by the division;
(4) the kinds of insurance business enumerated in
Section 4 that the new company will be authorized to
conduct;
(5) the date that the division is to be effective,
which shall not be more than 90 days after the dividing
company has filed the certificate of division with the
recorder, with a concurrent copy to the Director;
(6) a statement that the division was approved by the
Director in accordance with Section 35B-25;
(6) a statement that the dividing company provided, no
later than 10 business days after the dividing company
filed the plan of division with the Director, reasonable
notice to each reinsurer that is party to a reinsurance
contract that is applicable to the policies included in the
plan of division;
(7) if the dividing company will survive the division,
an amendment to its articles of incorporation or bylaws
approved as part of the plan of division;
(8) for each new company created by the division, its
articles of incorporation and bylaws, provided that the
articles of incorporation and bylaws need not state the
name or address of an incorporator; and
(9) a reasonable description of the capital, surplus,

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other assets and liabilities, including policy
liabilities, of the dividing company that are to be
allocated to each resulting company.
(c) The articles of incorporation and bylaws of each new
company must satisfy the requirements of the laws of this
State, provided that the documents need not be signed or
include a provision that need not be included in a restatement
of the document.
(d) A certificate of division is effective when filed with
the recorder, with a concurrent copy to the Director, as
provided in this Section or on another date specified in the
plan of division, whichever is later, provided that a
certificate of division shall become effective not more than 90
days after it is filed with the recorder. A division is
effective when the relevant certificate of division is
effective.
(215 ILCS 5/35B-35 new)
Sec. 35B-35. Effects of division.
(a) When a division becomes effective pursuant to Section
35B-30:
(1) if the dividing company has survived the division:
(A) it continues to exist;
(B) its articles of incorporation shall be
amended, if necessary, as provided in the plan of
division; and

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(C) its bylaws shall be amended, if necessary, as
provided in the plan of division;
(2) if the dividing company has not survived the
division, its separate existence ceases to exist;
(3) each new company:
(A) comes into existence;
(B) shall hold any capital, surplus, and other
assets allocated to such new company by the plan of
division as a successor to the dividing company,
automatically, by operation of law and not by transfer,
whether directly or indirectly; and
(C) its articles of incorporation, if any, and
bylaws, if any, shall be effective;
(4) capital, surplus, and other assets of the dividing
company:
(A) that is allocated by the plan of division
either:
(i) vests in the applicable new company as
provided in the plan of division; or
(ii) remains vested in the dividing company as
provided in the plan of division;
(B) that is not allocated by the plan of division
either:
(i) remains vested in the dividing company, if
the dividing company survives the division; or
(ii) is allocated to and vests equally in the

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resulting companies as tenants in common, if the
dividing company does not survive the division; or
(C) otherwise vests as provided in this subsection
without transfer, reversion, or impairment;
(5) a resulting company to which a cause of action is
allocated as provided in paragraph (4) of this subsection
(a) may be substituted or added in any pending action or
proceeding to which the dividing company is a party when
the division becomes effective;
(6) the liabilities, including policy liabilities, of
the dividing company are allocated between or among the
resulting companies as provided in Section 35B-40 and each
resulting company to which liabilities are allocated is
liable only for those liabilities, including policy
liabilities, so allocated as successors to the dividing
company, automatically, by operation of law, and not by
transfer (or, for the avoidance of doubt, assumption),
whether directly or indirectly; and
(7) the shares in the dividing company that are to be
converted or canceled in the division are converted or
canceled, and the shareholders of those shares are entitled
only to the rights provided to them under the plan of
division and any appraisal rights that they may have
pursuant to Section 35B-45.
(b) Except as provided in the articles of incorporation or
bylaws of the dividing company, the division does not give rise

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to any rights that a shareholder, director of a domestic stock
company, or third party would have upon a dissolution,
liquidation, or winding up of the dividing company.
(c) The allocation to a new company of capital, surplus, or
other assets that is collateral covered by an effective
financing statement shall not be effective until a new
financing statement naming the new company as a debtor is
effective under the Uniform Commercial Code.
(d) Unless otherwise provided in the plan of division, the
shares in and any securities of each new company shall be
distributed to:
(1) the dividing company, if it survives the division;
or
(2) shareholders of the dividing company that do not
assert any appraisal rights that they may have pursuant to
Section 35B-45, pro rata.
(215 ILCS 5/35B-40 new)
Sec. 35B-40. Resulting company liabilities.
(a) Except as otherwise expressly provided in this Section,
when a division becomes effective, each resulting company is
responsible, automatically, by operation of law, for:
(1) individually, the liabilities, including policy
liabilities, that the resulting company issues,
undertakes, or incurs in its own name after the division;
(2) individually, the liabilities, including policy

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liabilities, of the dividing company that are allocated to
or remain the liability of the resulting company to the
extent specified in the plan of division; and
(3) jointly and severally with the other resulting
companies, the liabilities, including policy liabilities,
of the dividing company that are not allocated by the plan
of division.
(b) Except as otherwise expressly provided in this Section,
when a division becomes effective, no resulting company is
responsible for or shall have any liability or obligation in
respect of:
(1) any liabilities, including policy liabilities,
that another resulting company issues, undertakes, or
incurs in its own name after the division; or
(2) any liabilities, including policy liabilities, of
the dividing company that are allocated to or remain the
liability of another resulting company in accordance with
the plan of division.
(c) If a provision of a debt security, note, or similar
evidence of indebtedness for money borrowed, whether secured or
unsecured, indenture or other contract relating to
indebtedness, or a provision of any other type of contract
other than an insurance policy, annuity, or reinsurance
agreement, that was issued, incurred, or executed by the
domestic stock company before requires the consent of the
obligee to a merger of the dividing company or treats the

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merger as a default, that provision applies to a division of
the dividing company as if the division was a merger.
(d) If a division breaches a contractual obligation of the
dividing company at the time the division becomes effective,
all of the resulting companies are liable, jointly and
severally, for the contractual breach, but the validity and
effectiveness of the division, including, without limitation,
the allocation of liabilities in accordance with the plan of
division, shall not be affected by the contractual breach.
(e) A direct or indirect allocation of capital, surplus,
assets, or liabilities, including policy liabilities, in a
division shall occur automatically, by operation of law, and
shall not be treated as a distribution or transfer for any
purpose with respect to either the dividing company or any of
the resulting companies.
(f) Liens, security interests, and other charges on the
capital, surplus, or other assets of the dividing company are
not impaired by the division, notwithstanding any otherwise
enforceable allocation of liabilities, including policy
liabilities, of the dividing company.
(g) If the dividing company is bound by a security
agreement governed by Article 9 of the Uniform Commercial Code
as enacted in this State or in any other jurisdiction, and the
security agreement provides that the security interest
attaches to after-acquired collateral, each resulting company
is bound by the security agreement.

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(h) An allocation of a policy or other liability does not:
(1) except as provided in the plan of division and
specifically approved by the Director, affect the rights
that a policyholder or creditor has under other law in
respect of the policy or other liability, except that those
rights are available only against a resulting company
responsible for the policy or liability under this Section;
or
(2) release or reduce the obligation of a reinsurer,
surety, or guarantor of the policy or liability.
(215 ILCS 5/35B-45 new)
Sec. 35B-45. Shareholder rights. If the dividing company
does not survive the division, an objecting shareholder of a
dividing company is entitled to appraisal rights and to obtain
payment of the fair value of that shareholder's shares, in the
same manner and to the extent provided for pursuant to Section
167.
(215 ILCS 5/35B-50 new)
Sec. 35B-50. Rules. The Director may adopt such rules as
are necessary or appropriate to carry out this Article.
(215 ILCS 5/156) (from Ch. 73, par. 768)
Sec. 156. Merger and consolidation permitted.
(a) Upon complying with the provisions of this article, any

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domestic company, except a Lloyds, is hereby authorized and
empowered to merge or consolidate with any domestic company or
with any foreign or alien company, except a Lloyds if the
surviving company meets the requirements for authorization to
engage in the insurance business in this state and, if such
merger or consolidation is authorized by the laws of the state
or country under which such foreign or alien company is
incorporated or organized.
(b) The Director may permit the formation of a domestic
stock company that is established for the sole purpose of
merging or consolidating with an existing stock company
simultaneously with the effectiveness of a division authorized
by this Code. Upon request of the dividing company, the
Director may waive the requirements of Section 131.8 of this
Code. Each domestic stock company formed under this subsection
shall be deemed to exist before a merger and division under
this Section becomes effective, but solely for the purpose of
being a party to such merger and division. The Director shall
not require that such domestic stock company be licensed to
transact insurance business in this state before such merger
and division. All insurance policies, annuities, or
reinsurance agreements allocated to such domestic stock
company shall become the obligation of the domestic stock
company that survives the merger simultaneously with the
effectiveness of the merger and division. The plan of merger or
consolidation shall be deemed to have been authorized and

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approved by such domestic stock company if the dividing company
authorized and approved such plan. The certificate of merger
shall state that it was approved by the domestic stock company
formed under this subsection.
(Source: Laws 1967, p. 1760.)