Page 31 - Chicagp Fall EXPO 2019

CHICAGOCOOPERATOR.COM THE CHICAGOLAND COOPERATOR — FALL 2019 31 most condominiums do not typically incorpo- rate under the BCL, or even under the Not-For Profi t Corporation Law. So while it is unclear how this new law would apply to condomini- ums, apparently the New York State legislature is working on a clarifi cation so that the disclo- sure requirement will clearly apply to condo- miniums. Th e second requirement is that, at least once a year, an annual report must be sent to all shareholders, signed by each and every direc- tor, that lists all contracts or transactions that were voted upon by the board that involved an interested director. Th is report must include the following information: (i) information on the recipient and the amount and the purpose of the contract; (ii) a record of the meetings of the directors including attendance and how each director voted; and (iii) the date of the vote and the date that contract/transaction became valid. Th e board must prepare this report without exception. Even if there were no transactions involving an interested director, then the report must state that “no actions taken by the board were subject to the an- nual report re- quired pursuant to Section 727 of the Business Cor- poration Law. Th ere are still issues to be ironed out here, such as the de- gree to which someone can be involved with a vendor before it constitutes a con- fl ict of interest, and the specifi c consequences for self-dealing. But it is clear ration,’ further that, ‘… a director who has a that the issue is being taken seriously not only personal interest in a subject under consider- in New York but across the country. Th e spirit ation is disqualifi ed to vote on the matter and of cooperative living depends on transpar- ency and a board abiding its fi duciary duty. ing a quorum,’” Kirsch explains. Below, we’ll delve further into how confl icts are snuff ed out in various markets. The Windy... State In Illinois, both the General Not for Profi t three should provide a remedy. “Many times, Corporation Act (IL GNFPCA) and the it only takes the fi ling of the lawsuit to resolve Condominium Property Act (ICPA) off er the problem, or the fi rst appearance before guidance pertaining to confl icts of interest, the court,” notes Kirsch. “Also, owners should according to Chicago-based attorney Sima be aware that, if they were not advised or did Kirsch. Section 108.60 of the former, for example, on the board to off er evidence that the trans- “considers a confl ict of interest to arise when action was fair and not detrimental to the as- a director is directly or indirectly a party to a sociation.” transaction,” says Kirsch, while section 18(a) (16) of the latter “prohibits a board from en- tering into a contract with a board member commodity, the law tends to be less specifi c. or corporation in which the board member or their immediate family has a 25 percent or 183A) does entitle unit owners to make ap- larger interest, unless two conditions are met: the board must notify unit owners of the in- tent to enter into the contract within 20 days aft er the decision is made, and the unit own- ers must be aff orded an opportunity to fi le a petition and vote to approve or disapprove the contract.” “Generally, if a director has a ‘personal in- terest’ in a matter of concern to the associa- tion, he or she should recuse themselves – al- though doing so is a rare occurrence,” Kirsch admits. “Th erefore, the board must be vigi- lant and request the director – even with the protective measures of 18(a) (16) of the Act and 108.60 of the GNFPCA – not to partici- pate in the vote on the issue at hand – which includes deliberation.” Should that fail, Kirsch suggests that the group alleging a confl ict put a petition in writing and send it by certifi ed mail to the board requesting a special meeting to have the board member in question recuse himself or herself. Barring that, the aggrieved are left with mediation – should the association’s dec- laration have a provision that calls for it – or fi ling suit. “At the core of the confl ict of interest issues is the general principle of Illinois law that the ‘duties imposed upon a di- rector of the corpo- ration as a fi duciary requires him to man- age the corporation with undivided and unqualifi ed loyalty and prohibit him from profi ting per- sonally at corporate expense or permit- ting his private in- terests to clash with those of the corpo- may not be counted for the purposes of mak- When confl icts of interest arise, the GN- FPCA, the ICPA, case law pertaining to the specifi c topic, or some combination of the not know of the confl ict, than the burden is Nor-Eastern In New England, where co-ops are a rare “Our Condominium Statute (Chapter “Owners should be aware that, if they were not advised or did not know of the confl ict, than the burden is on the board to off er evidence that the transaction was fair and not detrimental to the association.” — Sima Kirsch continued on page 38 hillgrp.com See us at Booth 214