Sponsored by:
Assemblyman PATRICK J. DIEGNAN, JR.
District 18 (Middlesex)
SYNOPSIS
Revises applicability of law concerning derivative proceedings and shareholder class actions.
CURRENT VERSION OF TEXT
As introduced.
An Act concerning derivative proceedings and shareholder class actions and amending P.L.2013, c.42.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. Section 9 of P.L.2013, c.42 (C.14A:3-6.9) is amended to read as follows:
9. In any derivative proceeding or shareholder class action against a corporation organized under the provisions of the "New Jersey Business Corporation Act," N.J.S.14A:1-1 et seq.:
a. Except for sections 7 and 8 of P.L.2013, c.42 (C.14A:3-6.7 and 6.8), which must be expressly made applicable by the corporation's certificate of incorporation, the provisions of P.L.2013, c.42 (C.14A:3-6.1 et seq.) shall apply to actions brought in state or federal court both within and outside of the State of New Jersey [if the provisions of P.L.2013, c.42 (C.14A:3-6.1 et seq.) are made applicable to the corporation by the certificate of incorporation]; and
b. The provisions of the corporation's certificate of incorporation may vary the applicability or effect of the provisions of P.L.2013, c.42 (C.14A:3-6.1 et seq.) on that corporation.
(cf: P.L.2013, c.42, s.9)
2. This act shall take effect immediately.
STATEMENT
This bill revises the applicability of provisions of the "New Jersey Business Corporation Act" concerning derivative proceedings and shareholder class actions.
Under current law, the derivative proceeding and shareholder class action provisions of the "New Jersey Business Corporation Act" apply only if a corporation makes them applicable in its certificate of incorporation. This bill provides that the following provisions will apply to a corporation unless that corporation chooses to vary the applicability or effect of the provisions in its certificate of incorporation:
1) The conditions for commencing and maintaining a derivative proceeding;
2) The actions that must be taken before a shareholder may commence a derivative proceeding;
3) The conditions for a court to order a stay of a derivative proceeding;
4) The conditions for dismissal of a derivative proceeding; and
5) The necessity of court approval for the discontinuation or settlement of a derivative proceeding or shareholder class action.
The bill also provides that the following provisions of current law will apply only if a corporation makes them applicable in its certificate of incorporation:
1) The rules governing how a court should allocate expenses following the termination of a derivative proceeding or shareholder class action; and
2) The allowance that a defendant corporation in a derivative proceeding and shareholder class action may require the plaintiff to provide security for reasonable expenses related to the proceeding or class action.
The New Jersey Corporate and Business Law Study Commission recommends the legislative reforms in this bill.