PRINTER'S NO. 1576
No. 1231 Session of 1999
INTRODUCED BY MURPHY, BELL, HART, COSTA AND BOSCOLA,
DECEMBER 8, 1999
REFERRED TO JUDICIARY, DECEMBER 8, 1999
AN ACT
1 Amending Title 15 (Corporations and Unincorporated Associations)
2 of the Pennsylvania Consolidated Statutes, providing for
3 fundamental changes of charitable nonprofit corporations; and
4 further providing for filing and effectiveness of articles of
5 amendment, for effect of merger or consolidation, for
6 voluntary transfer of corporate assets, for effect of
7 division, for effect of conversion, for judicial supervision
8 of proceedings and for articles of involuntary dissolution.
9 The General Assembly finds and declares as follows:
10 (1) It is a basic governmental interest to encourage and
11 promote charitable giving to nonprofit organizations by the
12 citizens of this Commonwealth and by the private business
13 community engaged in operations within this Commonwealth.
14 (2) It is an important governmental interest that the
15 Commonwealth ensure that the intentions of charitable gifts
16 be fulfilled and maintained throughout the duration of the
17 charitable gifts.
18 (3) It is an essential governmental interest that the
19 Commonwealth especially preserve and protect the intentions
20 and expectations behind charitable gifts given to serve the
1 health needs of its citizens.
2 The General Assembly of the Commonwealth of Pennsylvania
3 hereby enacts as follows:
4 Section 1. Title 15 of the Pennsylvania Consolidated
5 Statutes is amended by adding a section to read:
6 § 5906. Charitable nonprofit corporations.
7 (a) General rule.--Where any provision of Subchapter A
8 (relating to preliminary provisions), C (relating to merger,
9 consolidation and sale of assets), D (relating to division), E
10 (relating to conversion), F (relating to voluntary dissolution
11 and winding up), G (relating to involuntary liquidation and
12 dissolution) or H (relating to postdissolution provision for
13 liabilities) relates to a nonprofit corporation incorporated for
14 any charitable purpose or purposes as defined under section 5103
15 (relating to definitions), no action shall take effect unless,
16 after notice to the Attorney General, an order of orphans' court
17 approving the proposed transaction has been obtained, except as
18 provided in subsection (f)(3). In addition, no affiliation,
19 amendment of articles of incorporation, partnership, joint
20 venture, gift or other transaction, which results in a change in
21 control of all, or substantially all, of the assets of a
22 nonprofit corporation incorporated for any charitable purpose or
23 purposes defined under section 5103, shall take effect unless,
24 after notice to the Attorney General, an order of orphans' court
25 approving the proposed transaction has been obtained, except as
26 provided in subsection (f)(2).
27 (b) Notice to Attorney General.--At least 90 days' advance
28 written notice of any proceeding in the orphans' court
29 concerning the proposed transaction shall be provided to the
30 Attorney General of the Commonwealth at his principal office in
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1 Harrisburg, Pennsylvania. The notice shall include or be
2 accompanied by any documents or information the Attorney General
3 may request. Within 30 days after receipt of the notice required
4 by this section, the Attorney General shall notify the
5 charitable nonprofit corporation in writing of the Attorney
6 General's decision on whether the proposed transaction requires
7 further review or a recommendation to require court approval.
8 (c) Scope of Attorney General's review.--In reviewing the
9 proposed transaction, the Attorney General may consider:
10 (1) Whether the fiduciary responsibilities of trustees,
11 officers and directors, particularly relative to the exercise
12 of due diligence, have been appropriately discharged.
13 (2) Whether the charitable nonprofit corporation will
14 receive fair market value for its charitable assets.
15 (3) Whether the transaction is at arm's length, or will
16 result in private inurement to any person.
17 (4) Whether the remaining or successor charitable
18 organization utilizes the assets for as like a charitable
19 purpose and to the benefit of the same class of beneficiaries
20 in the same geographical location as the original charitable
21 nonprofit corporation as possible.
22 (5) Whether the parties to the transaction have
23 petitioned the orphans' court under subsection (f) for an
24 appropriate cy pres proceeding as to the application of the
25 charitable assets after the transaction is completed.
26 (6) The solvency of the remaining or successor
27 charitable organization after the transaction is complete.
28 (d) Cost of Attorney General's review.--The Attorney General
29 may contract with independent experts and consultants in
30 evaluating the propriety and effects of the proposed transaction
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1 and shall be reimbursed for all reasonable costs and expenses
2 incurred therefor by the identified parties, regardless of the
3 Attorney General's position concerning the proposed transaction
4 or the court's ultimate disposition of the same. Within a
5 reasonable time after notice is given to the Attorney General
6 pursuant to subsection (b), the Attorney General shall notify
7 the parties to the transaction of their obligations under this
8 subsection. The parties to the transaction may petition the
9 court for a review and adjustment of the costs and expenses
10 incurred under this subsection.
11 (e) Public hearings, notice of time and place.--The Attorney
12 General may conduct one or more public hearings, one of which
13 must be held in the county where the charitable nonprofit
14 corporation affected by the transaction is located. At the
15 public hearing, the Attorney General may hear comments from
16 interested persons desiring to make statements regarding the
17 proposed transaction. The Attorney General shall notify the
18 parties to the transaction of any public hearing to be held at
19 least 14 days prior to the date selected for the hearing.
20 (f) Orphans' 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 or courts and the same shall be
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1 available for public inspection, unless, upon application by
2 the moving party and after notice to the Attorney General,
3 the court or courts should seal the record pending a final
4 disposition of the case. Any such orders so entered shall be
5 immediately dissolved upon the approval or other final
6 disposition of the case.
7 (2) If a nonprofit corporation is insolvent or in
8 material monetary default of an obligation to a secured
9 lender, upon petition of a nonprofit corporation, any
10 creditor thereof or a receiver appointed under Subchapter G,
11 the court may shorten the time for notice to the Attorney
12 General to no less than 30 days and may reduce the content of
13 such notice. After notice to the nonprofit corporation,
14 creditors and the Attorney General and, after a hearing on
15 the matter, the court may order the involuntary windup and
16 dissolution of the corporation or other relief, including,
17 but not limited to, ordering the expedited sale of all or
18 part of the assets, or other expedited disposition or
19 transfer of control of the nonprofit corporation. For
20 purposes of this paragraph, with reference to a nonprofit
21 corporation, "insolvent" means a financial condition such
22 that the sums of the corporation's debts are greater than all
23 of its property valued at a fair market valuation, and the
24 nonprofit corporation is generally not paying its debts as
25 they become due.
26 (3) Notwithstanding subsection (a), this subsection
27 shall not apply to transactions involving only charitable
28 nonprofit organizations where the Attorney General has no
29 objection to the transaction and has determined that no order
30 of the orphans' court is required pursuant to section 5547(b)
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1 (relating to nondiversion of certain property).
2 (g) Savings clause.--Nothing in this section shall be
3 construed to derogate from the authority of the Attorney
4 General, or the rights of others, provided by common law or
5 other statute or rule.
6 Section 2. Sections 5916(b), 5929(b), 5930(a) and (b),
7 5957(b), 5966, 5976(b) and 5989(a) of Title 15 are amended to
8 read:
9 § 5916. Filing and effectiveness of articles of amendment.
10 * * *
11 (b) Effectiveness.--Upon the filing of the articles of
12 amendment in the department or upon the effective date specified
13 in the articles of amendment, whichever is later, the amendment
14 shall become effective and the articles of incorporation shall
15 be deemed to be amended accordingly. An amendment shall not
16 affect any existing cause of action in favor of or against the
17 corporation, or any pending action or proceeding to which the
18 corporation is a party, or the existing rights of persons other
19 than members or, except as otherwise provided by order, if any,
20 obtained pursuant to [section] sections 5547(b) (relating to
21 nondiversion of certain property) and 5906 (relating to
22 charitable nonprofit corporations) divert any property subject
23 to such section from the purpose or purposes to which it was
24 committed. If the corporate name is changed by the amendment, an
25 action brought by or against the corporation under its former
26 name shall not be abated for that reason.
27 § 5929. Effect of merger or consolidation.
28 * * *
29 (b) Property rights.--Except as otherwise provided by order,
30 if any, obtained pursuant to [section] sections 5547(b)
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1 (relating to nondiversion of certain property) and 5906
2 (relating to charitable nonprofit corporations), all the
3 property, real, personal, and mixed, and franchises of each of
4 the corporations parties to the plan of merger or consolidation,
5 and all debts due on whatever account to any of them, including
6 subscriptions for membership and other choses in action
7 belonging to any of them, shall be taken and deemed to be
8 transferred to and vested in the surviving or new corporation,
9 as the case may be, without further act or deed. The surviving
10 or new corporation shall thenceforth be responsible for all the
11 liabilities and obligations of each of the corporations so
12 merged or consolidated. No liens upon the property of the
13 merging or consolidating corporations shall be impaired by such
14 merger or consolidation, and any claim existing or action or
15 proceeding pending by or against any of such corporations may be
16 prosecuted to judgment as if such merger or consolidation had
17 not taken place, or the surviving or new corporation may be
18 proceeded against or substituted in its place. Any devise, gift
19 or grant contained in any will or other instrument, in trust or
20 otherwise, made before or after such merger or consolidation, to
21 or for any of the constituent corporations, shall inure to the
22 surviving or new corporation, as the case may be, subject to
23 compliance with the requirements of section 5550 (relating to
24 devises, bequests and gifts after certain fundamental changes).
25 * * *
26 § 5930. Voluntary transfer of corporate assets.
27 (a) General rule.--A nonprofit corporation shall not sell,
28 lease away or exchange its name or trademark, nor all, or
29 substantially all, its property and assets, or control of them,
30 with or without good will, unless and until a plan of sale,
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1 lease or exchange of assets with respect thereto shall have been
2 adopted by the corporation in the manner provided in this
3 subchapter with respect to the adoption of a plan of merger. In
4 order to make effective any plan of sale, lease or exchange of
5 assets so adopted it shall not be necessary to file any articles
6 or other document in the Department of State, but the
7 corporation shall comply with the requirements of [section]
8 sections 5547(b) (relating to nondiversion of certain property)
9 and 5906 (relating to charitable nonprofit corporations) when
10 applicable.
11 (b) Exceptions.--Subsection (a) of this section shall not
12 apply to a sale, lease away or exchange of all, or substantially
13 all, the property and assets of a corporation when made in
14 connection with the dissolution or liquidation of the
15 corporation. Such a transaction shall be governed by the
16 provisions of Subchapter A (relating to preliminary provisions),
17 Subchapter F (relating to voluntary dissolution and winding up)
18 or Subchapter G (relating to involuntary liquidation and
19 dissolution), as the case may be.
20 * * *
21 § 5957. Effect of division.
22 * * *
23 (b) Property rights.--Except as otherwise provided by order,
24 if any, obtained pursuant to [section] sections 5547(b)
25 (relating to nondiversion of certain property) and 5906
26 (relating to charitable nonprofit corporations), all the
27 property, real, personal, and mixed, and franchises of the
28 dividing corporation, and all debts due on whatever account to
29 it, including subscriptions for membership and other choses in
30 action belonging to it, shall be taken and deemed without
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1 further act or deed to be transferred to and vested in the
2 resulting corporations on such a manner and basis and with such
3 effect as is specified in the plan of division, or per capita
4 among the resulting corporations, as tenants in common, if no
5 such specification is made in the plan. The resulting
6 corporations shall each thenceforth be responsible as separate
7 and distinct corporations only for such liabilities and
8 obligations as each corporation may undertake or incur in its
9 own name, but shall be liable inter se for the debts and
10 liabilities of the dividing corporation in the manner and on the
11 basis specified in the plan of division. No liens upon the
12 property of the dividing corporation shall be impaired by the
13 division. One or more, but less than all, of the resulting
14 corporations shall be free of all the liabilities and
15 obligations of the dividing corporation to the extent, if any,
16 specified in the plan, if no fraud of corporate creditors or
17 members without voting rights and if no violation of law shall
18 be effected thereby, and if applicable provisions of law are
19 complied with. Otherwise, the liability of the dividing
20 corporation, or of its members, directors, or officers, shall
21 not be affected by the division, nor shall the rights of the
22 creditors thereof or of any person dealing with such corporation
23 be impaired by such division, and, except as otherwise provided
24 in this section, any claim existing or action or proceeding
25 pending by or against such corporation may be prosecuted to
26 judgment as if such division had not taken place, or the
27 resulting corporations may be proceeded against or substituted
28 in its place as joint and several obligors on such liability,
29 regardless of any provision of the plan of division apportioning
30 the debts and liabilities of the dividing corporation.
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1 * * *
2 § 5966. Effect of conversion.
3 Upon the conversion becoming effective, the corporation shall
4 be deemed to be a business corporation for all purposes, shall
5 cease to be a nonprofit corporation, and may thereafter operate
6 for a purpose or purposes resulting in pecuniary profit,
7 incidental or otherwise, to its members or shareholders. The
8 corporation shall issue share certificates to each shareholder
9 entitled thereto. The corporation shall remain liable for all
10 existing obligations, public and private, taxes due the
11 Commonwealth or any other taxing authority for periods prior to
12 the effective date of the conversion, and, as such business
13 corporation, it shall continue to be entitled to all assets
14 theretofore pertaining to it as a nonprofit corporation except
15 as otherwise provided by order, if any, obtained pursuant to
16 [section] sections 5547(b) (relating to nondiversion of certain
17 property) and 5906 (relating to charitable nonprofit
18 corporations).
19 § 5976. Judicial supervision of proceedings.
20 * * *
21 (b) Distribution of property committed to charitable
22 purposes.--If the assets of the corporation include any property
23 committed to charitable purposes, the board of directors or
24 other body shall apply to the court for an order pursuant to
25 [section] sections 5547(b) (relating to nondiversion of certain
26 property) and 5906 (relating to charitable nonprofit
27 corporations) specifying the disposition of the property.
28 * * *
29 § 5989. Articles of involuntary dissolution.
30 (a) General rule.--In a proceeding under this subchapter,
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1 the court shall enter an order dissolving the nonprofit
2 corporation when the order, if any, obtained pursuant to
3 [section] sections 5547(b) (relating to nondiversion of certain
4 property) and 5906 (relating to charitable nonprofit
5 corporations) has been entered and when the costs and expenses
6 of the proceeding, and all liabilities of the corporation have
7 been discharged, and all of its remaining assets have been
8 distributed to the persons entitled thereto, or, in case its
9 assets are not sufficient to discharge such costs, expenses and
10 liabilities, when all the assets have been applied, as far as
11 they will go, to the payment of such costs, expenses and
12 liabilities.
13 * * *
14 Section 3. This act shall take effect in 60 days.
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