Q&A: Financial Management?

Q If a co-op gets the run around from its board about finances and there is evidence of mismanagement, how can a shareholder organize to get shareholders to hire their own attorney to represent them?

—United We Stand

A “The board has a fiduciary responsibility to the shareholders of the co-op to manage it in a way that protects all of the shareholders' interests,” according to attorney Peter H. Jagel of the The Law Offices of Peter H. Jagel, P.C. in Naperville. “The board also has a legal responsibility to maintain and produce records of the co-op that should chronicle and demonstrate that the board is meeting this fiduciary duty. When the board fails to meet these responsibilities even after being confronted with the problem, the board becomes an adversary.

“At this point, trying to organize opposition at co-op gatherings is not going to work and may reveal more information to the board than you would like. The best way to get something started is to communicate directly with the other shareholders your concerns over the board's conduct and the importance of protecting all of the shareholders' interests. You may have heard others speaking up at prior board meetings about these same issues and those shareholders should be contacted and enlisted to help bring in more interested shareholders. The co-op's governing documents should provide for the ability to obtain contact information for the other shareholders. If enough shareholders get interested, you may be able to resolve the problem through the political process of voting the board out of office.

“If legal action is required, it only takes one shareholder to bring suit against the board, but being able to pool resources to finance a legal action always makes this type of challenge easier. Depending upon the causes of action included in the legal suit, challenging shareholders that prevail may be awarded their costs involved in bringing the suit, including their reasonable attorneys fees. Hiring an attorney familiar with community association law and the legal issues related to co-ops is also extremely important both in terms of proper advice and reaching a positive result.”