BILL ANALYSIS �
AB 491
Page 1
Date of Hearing: May 7, 2013
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 491 (Torres) - As Amended: April 10, 2013
PROPOSED CONSENT (As Proposed to be Amended)
SUBJECT : Corporations: Bylaws: Emergency Powers
KEY ISSUE : Should A corporate Board of Directors have the power
to take certain actions during an emergency?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
Sponsored by the Corporations Committee of the Business Law
Section of the State Bar, this bill would authorize a
corporation to take certain actions should there be an emergency
that makes it impossible to convene a quorum of the board of
directors. It would also specify that any actions taken in good
faith during an emergency under the provisions of this bill
binds the corporation and may not be used to impose liability on
a corporate director, officer, employee, or agent. The bill
would apply to both for-profit and nonprofit corporations,
including mutual benefit corporations and religious
corporations. Existing law imposes limitations on actions that
a board can take and further limits the power of the board to
take actions without a quorum. The author and sponsor contend
that existing law has no provision for relaxing any of these
limitations during an emergency. Under existing law, if an
emergency made it impossible to convene a quorum, but the
emergency necessitated taking certain actions, the validity of
those actions could be challenged. There do not appear to be
any examples in which an emergency has ever prevented a
California corporation from acting, and California corporations
have apparently managed to function under existing law despite a
long list of disasters, both natural and manmade. Nonetheless,
the author and sponsor believe that it would be wise to
anticipate and provide for such situations. This bill recently
passed out of the Assembly Banking & Finance Committee on a 12-0
vote. There is no known opposition to this bill. The author
will take an amendment in this Committee to clarify that the
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emergency, and therefore the corresponding powers, is deemed to
have ended as soon as it is possible to convene a quorum of the
board of directors. The summary and analysis reflect that
amendment.
SUMMARY : Authorizes a corporation to take actions during an
emergency, as defined, and to adopt bylaws to further direct the
operations of the corporation during an emergency.
Specifically, this bill :
1)Gives a corporation the power, unless otherwise prohibited by
law, to take the following actions in advance of or during an
emergency:
a) Modify lines of succession to accommodate the incapacity
of any director, officer, employee, or agent resulting from
the emergency.
b) Relocate the principal office.
c) Give notice to a director or directors in any practical
manner under the circumstances, including, but not limited
to, by publication and radio.
d) Deem one or more officers of the corporation present at
a board meeting a director, to the extent necessary to
achieve a quorum.
2)Prohibits the board during an emergency from taking any action
that requires the vote of the shareholders or an action that
is outside the corporation's ordinary course of business,
unless the required vote of the shareholders was obtained
prior to the emergency.
3)Provides that any action taken in good faith during an
emergency under the provisions of this bill binds the
corporation and may not be used to impose liability on a
corporate director, office, employee, or agent.
4)Defines "emergency" to mean any of the following events or
circumstances as a result of which, and only so long as, the
corporation's directors cannot be readily convened for action:
a) A natural catastrophe, including, but not limited to, a
hurricane, tornado, storm, high water, wind-driven water,
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tidal wave, tsunami, earthquake, volcanic eruption,
landslide, mudslide, snowstorm, or drought, or; regardless
of cause, any fire, flood, or explosion.
b) An attack on this state or nation by an enemy of the
United States of America, or upon receipt by this state of
a warning from the federal government indicating that an
enemy attack is probable or imminent.
c) An act of terrorism or other man-made disaster that
results in extraordinary levels of casualties or damage or
disruption severely affecting the infrastructure,
environment, economy, government functions, or population,
including, but not limited to, mass evacuations.
d) A state of emergency proclaimed by the Governor.
5)Authorizes a corporation to adopt bylaws to further direct the
operations of the corporation during an emergency.
EXISTING LAW authorizes and regulates the formation and
operation of a corporation, including, but not limited to, the
adoption and contents of corporate articles and bylaws, and
provides that a corporation shall have all the powers of a
natural person in carrying out its business activities, as
specified. (Corporations Code Sections 207 and 212.)
COMMENTS : Existing law imposes limitations on actions that a
corporation's board of directors can take and further limits the
power of the board to take actions without a quorum. But
according to the author and sponsor, existing law has no
provision for relaxing any of these limitations during an
emergency. If an emergency made it impossible for the board to
convene a forum, for example, but the pressing nature of the
emergency compelled the board to act, those actions could later
be challenged. Although there are no examples to date of a
corporation being unable to act for want of a quorum during an
emergency, the author and sponsor believes that it is important
to prepare for such a possibility.
Based on the American Bar Association's Model Business
Corporation Act (MCBA) which most other states have already
adopted, this bill would grant emergency powers under the
relevant provisions of the California Corporations Code. In
addition, it would authorize corporations to adopt bylaws that
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further the goal of operating a corporation during an emergency,
so long as the bylaws are consistent with the provisions of this
bill and other provisions of law. As most recently amended,
this bill would apply to both for-profit and nonprofit
corporations, including nonprofit public benefit corporations,
nonprofit mutual benefit corporations, and nonprofit religious
corporations.
Liability Provision : Of particular concern to this Committee,
the bill provides that any actions taken in good faith during an
emergency under the provisions of this bill binds the
corporation and may not be used to impose liability on a
corporate director, officer, employee, or agent. It should be
stressed that this is a very narrow immunity. It does not
provide immunity for anything that the directors do during the
emergency. It only applies to actions that are taken in (1)
good faith (2) during the emergency and, most limiting, (3)
"under this subdivision" - meaning that the immunity from
liability only extends to the limited set of actions that the
bill authorizes the board to do during an emergency: modify
lines of succession, relocate the principle office, give notice
of meetings to directors by means that are available, and deem
one or more officers of the corporation a director as is
necessary to achieve a quorum. For any other actions, including
the normal course of conducting business, the corporations and
its directors, officers, employees, and agents would be subject
to the same liabilities and fiduciary duties that apply at any
other time. In addition, as proposed to be amended in this
Committee, these limited powers and accompanying immunity only
apply for as long as there is an emergency. The emergency only
lasts for as long as the events or circumstances that constitute
the emergency make it impossible to convene a quorum. As soon
as a quorum can be established, the emergency is over, and so
are the limited powers and immunities.
ARGUMENTS IN SUPPORT : According to the sponsor: "Without
emergency powers and/or bylaws, a corporation may be unable to
continue its business or risk a challenge to any actions taken
with a lesser quorum, during an emergency. Additionally, an
emergency could prevent the officers from conducting the
corporation's ordinary business operations. Providing the board
with the necessary powers to act in lieu of the officers or to
elect temporary officers to act would be critical."
PROPOSED AUTHOR AMENDMENTS : In response to concerns the bill
AB 491
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does not specify when an emergency ends, the author wishes to
take the following amendment in this Committee:
- On page 3 line 30 after "which" insert: and only so
long as
- On page 8 line 4 after "which" insert: and only so long
as
- On page 12 line 4 after "which" insert: and only so long
as
- On page 16 line 24 after "which" insert: and only do
long as
REGISTERED SUPPORT / OPPOSITION :
Support
Business Law Section, Corporations Committee, State Bar of
California (sponsor)
California Association of Nonprofits
Civil Justice Association of California
Southern California Edison
Opposition
None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334