PRIOR PRINTER'S NO. 3131 PRINTER'S NO. 3782
No. 2340 Session of 2000
INTRODUCED BY O'BRIEN, WOGAN, ORIE, BELFANTI, CAWLEY,
L. I. COHEN, M. COHEN, FRANKEL, GODSHALL, GORDNER, HARHAI,
HENNESSEY, HERMAN, JOSEPHS, MANDERINO, R. MILLER, MUNDY,
ROSS, SEYFERT, SHANER, STEVENSON, E. Z. TAYLOR, TIGUE,
TRELLO, TULLI, WALKO, WILLIAMS, LEDERER, THOMAS, RAMOS AND
DeWEESE, MARCH 15, 2000
AS AMENDED, COMMITTEE ON JUDICIARY, HOUSE OF REPRESENTATIVES,
JUNE 13, 2000
AN ACT
1 Amending Title 15 (Corporations and Unincorporated Associations)
2 of the Pennsylvania Consolidated Statutes, adding provisions
3 relating to fundamental changes to charitable nonprofit
4 corporations; and further providing for judicial supervision
5 of certain proceedings.
6 The General Assembly of the Commonwealth of Pennsylvania
7 hereby enacts as follows:
8 Section 1. Title 15 of the Pennsylvania Consolidated
9 Statutes is amended by adding a section to read:
10 § 5906. Charitable nonprofit corporations.
11 (a) General rule.--Where any provision of this subchapter or
12 subchapter C (relating to merger, consolidation and sale of
13 assets), D (relating to division), E (relating to conversion), F
14 (relating to voluntary dissolution and winding up), G (relating
15 to involuntary liquidation and dissolution) or H (relating to
16 postdissolution provision for liabilities) relates to a
17 nonprofit corporation incorporated for any charitable purpose or
1 purposes as defined under section 5103 (relating to
2 definitions):
3 (1) No action shall take effect unless, after notice to
4 the Attorney General, an order of the court approving the
5 proposed transaction has been obtained, except as provided in
6 subsection (f)(3).
7 (2) No affiliation, amendment of articles of
8 incorporation, partnership, joint venture, gift or other
9 transaction, which results in a change in control of all or
10 substantially all of the assets of a nonprofit corporation
11 incorporated for any charitable purpose or purposes defined
12 under section 5103, shall take effect unless, after notice to
13 the Attorney General, an order of court approving the
14 proposed transaction has been obtained, except as provided in
15 subsection (f)(2) (F)(3). <--
16 (b) Notice to Attorney General.--
17 (1) At least 90 days' advance written notice of any
18 proceeding in a court concerning the proposed transaction
19 shall be provided to the Attorney General at his principal
20 office in Harrisburg, Pennsylvania. The notice shall include
21 or be accompanied by any documents or information the
22 Attorney General may request.
23 (2) Within 30 days after receipt of the notice required
24 by this section, the Attorney General shall notify the
25 nonprofit charitable corporation in writing of the Attorney
26 General's decision on whether the proposed transaction
27 requires further review or a recommendation to require court
28 approval.
29 (c) Scope of Attorney General's review.--In reviewing the
30 proposed transaction, the Attorney General may consider:
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1 (1) Whether the fiduciary responsibilities of trustees,
2 officers and directors, particularly relative to the exercise
3 of due diligence, have been appropriately discharged.
4 (2) Whether the nonprofit charitable corporation will
5 receive fair market value for its charitable assets.
6 (3) Whether the transaction is at arm's length or will
7 result in private inurement to any person.
8 (4) Whether the remaining or successor charitable
9 organization utilizes the assets for a charitable purpose and <--
10 to the benefit of the same class of beneficiaries in the same
11 geographical location as the original nonprofit charitable
12 corporation. CONSISTENT WITH THE ARTICLES OF INCORPORATION, <--
13 AS AMENDED, OF THE ORIGINAL NONPROFIT CORPORATION.
14 (5) Whether the parties to the transaction have
15 petitioned the court under subsection (f) for an appropriate
16 cy pres proceeding as to the application of the charitable
17 assets after the transaction is completed.
18 (6) The solvency of the remaining or successor
19 charitable organization after the transaction is complete.
20 (d) Cost of Attorney General's review.--
21 (1) The Attorney General may contract with independent
22 experts and consultants in evaluating the propriety and
23 effects of the proposed transaction and shall be reimbursed
24 for all reasonable costs and expenses incurred therefor by
25 the identified parties, regardless of the Attorney General's
26 position concerning the proposed transaction or the court's
27 ultimate disposition of the same.
28 (2) Within a reasonable time after notice is given to
29 the Attorney General pursuant to subsection (b), the Attorney
30 General shall notify the parties to the transaction of their
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1 obligations under this subsection. THE PARTIES TO THE <--
2 TRANSACTION MUST AGREE TO ANY EXPENDITURES FOR EXPERTS
3 EXCEEDING $100,000 AND IN THE EVENT SUCH EXPENSES IMPOSED
4 UPON THE CHARITABLE NONPROFIT ORGANIZATION EXCEED A TOTAL OF
5 $150,000, THEN THE EXCESS OF THAT AMOUNT SHALL BE BORNE BY
6 THE OFFICE OF THE ATTORNEY GENERAL.
7 (3) The parties to the transaction may petition the
8 court for a review and adjustment of the costs and expenses
9 incurred under this subsection.
10 (e) Public hearings, notice of time and place.--
11 (1) The Attorney General may conduct one or more public
12 hearings, one of which must be held in the county where the
13 nonprofit charitable corporation affected by the transaction
14 is located. At the public hearing, the Attorney General may
15 hear comments from interested persons desiring to make
16 statements regarding the proposed transaction.
17 (2) The Attorney General shall notify the parties to the
18 transaction of any public hearing to be held at least 14 days
19 prior to the date selected for the hearing.
20 (f) Court approval required.--
21 (1) Except as provided in paragraph (3), no fundamental
22 change or transaction subject to the provisions of this
23 section shall be effective unless and until an order of court
24 has been obtained approving the transaction. The action shall
25 be brought in the county or counties in which the registered
26 office or offices of the affected charitable nonprofit
27 corporation or corporations are located and shall be
28 published in at least two newspapers of general circulation
29 in each county involved. All transaction documents shall be
30 submitted to the court and the same shall be available for
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1 public inspection, unless, EXCEPT FOR INFORMATION DETERMINED <--
2 BY THE ATTORNEY GENERAL TO BE CONFIDENTIAL OR PROPRIETARY, OR
3 upon application by the moving party and after notice to the
4 Attorney General, the court should seal the record pending a
5 final disposition of the case. Any such orders so entered
6 shall be immediately dissolved upon the approval or other
7 final disposition of the case.
8 (2) The court may shorten the time for notice to the
9 Attorney General to not less than 30 days and may reduce the
10 content of such notice, if a nonprofit corporation is:
11 (i) insolvent;
12 (ii) generally not paying its debts as they become
13 due, unless such default is the subject of a bona fide
14 dispute; or
15 (iii) in default of a material obligation to a
16 creditor;
17 upon petition of the nonprofit corporation, any creditor
18 thereof or a receiver appointed under Subchapter G.
19 (3) After notice to the nonprofit corporation, judgment <--
20 or lien creditors of record and the Attorney General and
21 after a hearing on the matter, the court may order the
22 expedited sale of all or part of the assets or other
23 expedited disposition or transfer of control of the nonprofit
24 corporation, or other relief, including, but not limited to,
25 ordering the involuntary wind-up and dissolution of the
26 nonprofit corporation.
27 (4) (3) Notwithstanding subsection (a), this subsection <--
28 shall not apply to transactions involving only nonprofit
29 charitable organizations where the Attorney General has no
30 objection to the transaction and has determined that no order
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1 of the court is required pursuant to section 5547(b)
2 (relating to nondiversion of certain property).
3 (5) (4) For purposes of this subsection, with reference <--
4 to a nonprofit corporation, "insolvent" means a financial
5 condition such that the sum of the corporation's debts are
6 greater than all of its property at a fair market valuation.
7 (g) Savings clause.--Nothing in this section shall be
8 construed to derogate from the authority of the Attorney
9 General, or the rights of others, provided by common law or
10 other statute or rule.
11 (H) APPLICABILITY.--NO PROVISION OF THIS SUBCHAPTER SHALL <--
12 APPLY TO ANY CHARITABLE NONPROFIT CORPORATION WITH TOTAL ASSETS
13 OF LESS THAN $100,000 BEFORE ACCUMULATED DEPRECIATION OR THAT
14 HAS HELD SUCH ASSETS IN ANY ONE OF ITS LAST THREE FISCAL YEARS.
15 FOR THE PURPOSES OF THIS SUBSECTION, THE TERM "TOTAL ASSETS"
16 SHALL INCLUDE THE CONSIDERATION IN ANY PENDING AGREEMENT OF
17 SALE.
18 (I) CONSTRUCTION.--NOTHING CONTAINED IN THIS SUBCHAPTER
19 SHALL BE CONSTRUED TO LIMIT OR AFFECT ANY OTHER STATUTORY OR
20 COMMON LAW AUTHORITY VESTED IN THE ATTORNEY GENERAL.
21 Section 2. Section 5976(b) of Title 15 is amended to read:
22 § 5976. Judicial supervision of proceedings.
23 * * *
24 (b) Distribution of property committed to charitable
25 purposes.--If the assets of the corporation include any property
26 committed to charitable purposes, the board of directors or
27 other body shall apply to the court for an order pursuant to
28 [section] sections 5547(b) (relating to nondiversion of certain
29 property) and 5906 (relating to charitable nonprofit
30 corporations) specifying the disposition of the property.
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1 * * *
2 Section 3. This act shall take effect in 60 days.
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