NY State Senate Bill 2021-S5513

Senate Bill S5513

2021-2022 Legislative Session

Relates to the indemnification of directors, officers and key persons; and to repeal sections 721, 722 and 723 of the not-for-profit corporation law; repealer

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Archive: Last Bill Status - In Senate Committee Corporations, Authorities And Commissions Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Jan 05, 2022	referred to corporations, authorities and commissions
Mar 09, 2021	referred to corporations, authorities and commissions

2021-S5513 (ACTIVE) - Details

Current Committee:: Senate Corporations, Authorities And Commissions
Law Section:: Not-for-Profit Corporation Law
Laws Affected:: Rpld §§721, 722 & 723, add §721, ren §§724 & 725 to be §§722 & 723, amd §§722, 723 & 720-a, N-PC L
Versions Introduced in Other Legislative Sessions:: 2019-2020: S5747
2023-2024: S5587

2021-S5513 (ACTIVE) - Summary

Relates to the indemnification of directors, officers and key persons.

2021-S5513 (ACTIVE) - Sponsor Memo

                                
 
BILL NUMBER: S5513

SPONSOR: COMRIE
 
TITLE OF BILL:

An act to amend the not-for-profit corporation law, in relation to the
indemnification of directors, officers and key persons; and to repeal
sections 721, 722 and 723 of the not-for-profit corporation law relating
thereto

 
SUMMARY OF MAJOR PROVISIONS:

The proposed consolidated indemnification provisions would make many
changes in law.

Section 1 of the bill would repeal section 721 for the reasons stated in
section I.A. of this Memorandum in Support.

Section 2 of the bill would renumber section 722 as section 721 and
consolidate the substantive indemnification provisions in one subdivi-
sion (A).

Subdivision (A) would make indemnification available not only in actions
by third parties, by the corporation and in derivative actions by the
corporation or by its members, but in representative actions by members
against directors, officers or key persons for, for example, violation
of their fiduciary duties to them. It would provide consistent standards
for director, officer and key person conduct by incorporating by refer-
ence the general fiduciary standards of care set forth in section 717
which section 722 now ignores. It combines existing section 722(a) and
part of section 722(c) up to the clause beginning "except . . . .

Subdivision (B) is essentially section 722(b) but modified consistent
with the proposed standards of conduct in subdivision (A) and to make it
clear that the presumption thus created is not irrebuttable.

Proposed subdivision (C) restates the clause in section 722(c) beginning
"except . . ." to preserve the authority of a court to award indemnifi-
cation, notwithstanding an adjudication of liability, if in its
discretion, the court determines that the director, officer or key
person had made a good faith effort to meet the applicable standards of
conduct. Section 722(c) now contains no substantive guidance for the
court. Proposed subdivision (C) also confers discretion on the court to
determine the extent to which indemnification shall be made. Section
722(c) now confers such discretion on a court only with respect to a
"proper" portion of a settlement amount and related (?) expenses.

Section 722(D) would overrule Spitzer v. Soundview Health Center, 2005
N.Y. Misc. LEXIS 3249, 233 N.Y.L.J. 18 (Sup. Ct. NY, County), one of the
"Espada" cases. The Court interpreted the requirement of an "undertak-
ing" in a case of advance indemnification to be as little as a naked
promise to repay. This exposes not-for-profit corporation assets to loss
and equally important, is inconsistent with settled law.

Section 2501 of the Civil Practice Law and Rules defines "undertaking"
either as "Any obligation to pay . . . which contains a covenant by a
surety to pay the required amount" or the "deposit . .  Law section 14
defines "bond" and "undertaking" as equivalent. The decision is also
inconsistent with how the similar Business Corporation Law section has
been applied. Donovan v. Rothman, 253 A.D.2d 629, 677 N.Y.S.2d 327 (1"
Dep't 1988); Pillplak v. Keyes, 286 A.D.2d 237, 729 N.Y.S.2d 99 (1"
Dep't), motion for leave to appeal denied, 97 N.Y.2d 828, 893 N.E.2d
105, 802 N.Y.S.2d 828 (2008).

Subdivision (E) is procedural and sets forth all of the ways a corpo-
ration may authorize indemnification as set forth in section 723 which
would be repealed.

Subdivision (F) provides that generally a corporation cannot retroac-
tively eliminate or impair rights to indemnification set forth in its
certificate of incorporation, to view or resolution of the board or of a
committee thereof.

Subdivision (G) makes it clear that the indemnification insurance that a
corporation is authorized to purchase by NPCL section 726 covers a
director's, officer's or key person's services, at the request of the
corporation, on another legal entity.

Subdivision (H) ensures the survival of indemnification in case of a
merger or consolidation of a corporation.

Subdivision (I) provides that once a right to indemnification arises, it
continues to benefit a former director, officer or key person's and her
or his heirs and estate.

Subdivision (j) incorporates section 722(d). Section 3 of the bill would
repeal section 723.

Section 4 of the bill would renumber section 724 as section 722 and make
a technical and a conforming change in the introductory paragraph of
subdivision (a).

Section 5 of the bill would renumber section 725 as section 723 and make
conforming changes in subdivision (a).

Section 6 of the bill would amend section 720-a to add "salary or other"
to the reference to "compensation" because "salary" is the term used in
section 715(e).

Section 7 of the bill would make January 1, 2020 the effective date of
the Act, but give directors, officers and key persons the option of
having their rights to indemnification determined either by the NPCL as
in effect when their rights accrued or under the NPCL as amended by such
act.

 
JUSTIFICATION:

This bill would completely revise the not-for-profit  corporation law's
(NPCL's) indemnification and related provisions for directors and offi-
cers and add key persons as individuals who may be indemnified to the
same extent as a director and officer. As Sean Delany, Esq., head of the
Lawyers Alliance, testified at the Senate Corporation Committee NPCL
hearing in 2013, the indemnification provisions are complicated, incom-
plete, inconsistent and unworkable.  Based as they are on the corre-
sponding provisions of the Business Corporation Law, some are also inap-
propriate for not-for-profit corporations. Some, but not all, of the
difficulties raised by the Business Corporation Law indemnification
provisions (and, therefore, by the NPCL's) are well analyzed in Schloss-
berg v. Schwartz, 43 Misc.3d 1224 (A), 992 N.Y.S.2d 161. (Sup. Ct.
Nassau County 2014), copy attached.

A. Repeal of Section 721. Section 721 would be repealed. It provides
that the indemnification and advancement of expenses of directors and
officers provided by NPCL Article 7 are not exclusive, if additional
indemnification is authorized by certificate of incorporation , by-laws,
resolution of members (if any), resolution of directors or agreement
with them.

However appropriate such a provision may be for for-profit Business
Corporation Law assets (see Business Corporation Law section 721), such
discretion is not appropriate for not-for-profit corporation assets,
even though the discretion conferred by section 721 is not unlimited. It
further provides "no indemnification may be made ... if a judgment or
other final adjudication adverse to the director or officer establishes
that his acts were committed in bad faith or were the result of active
and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained a financial profit or other
advantage to which he was not legally entitled." But as we shall see
these standards are not consistent with the standards for indemnifica-
tion in the substantive indemnification sections of Article 7 (which are
not themselves necessarily consistent). Not are they consistent with the
general fiduciary standard set forth in NPCL section 717. Nor it is
clear if they arc subject to the limitations on indemnification in
section 725 which applies by its terms to all of the Article 7 indemni-
fication provisions.

B. Section 722: Section 722(a) relates to indemnification in third party
or derivative civil or to criminal actions against a director or offi-
cer. Its standard is "acted in good faith, for a purpose which he
reasonably believed to be . . . in the best interests of the corpo-
ration, and, in criminal proceedings, had no reasonable cause to believe
that his conduct was unlawful." Why should it not also include represen-
tative actions by members which are alluded to in NPCL section 623(c)?
Why should indemnification apparently be available under section 722(a)
regardless of liability and, as we shall see, not under section 722(c)
except by court order for which the section provides only a vague stand-
ard? Section 722(c) relates only to actions against the director or
officer by the corporation itself or in its right or of that of another
entity the defendant serves at the request of the corporation, except a
threatened or pending action that is settled or when she or he shall
have been adjudged liable. But there is another exception: unless a
court determines that (nevertheless) she or he is "fairly and reason-
ably" entitled to indemnification. No standard is provided to the court.
723 Section 723(b) is largely procedure, But section 723 (a) raises new
issues of consistency: A person who has been successful, on the merits
or otherwise (procedurally?), in the defense of a civil or criminal
action.or proceeding of the character described in section 722 shall be
entitled to indemnification as authorized in such section. (emphasis
added)

Section 723(c) provides:  Expenses incurred in defending a civil or
criminal action or proceeding may be paid for in advance of the final
disposition of such action or proceeding upon receipt of an undertaking
by or on behalf of such director officer to repay such amount as, and to
the extent, required by paragraph (a) of section 725
This requirement was emasculated by Spitzer v. Soundview Health Center,
2005 N.Y. Misc. LEXIS 3249, 233 N.Y.L.J. 18 (Sup. Ct. N.Y. County), one
of the Espada cases. There the Court held that a bare promise to repay
was sufficient, despite contrary authority. Section 725(a)

 
OTHER PROVISIONS AFFECTING INDEMNIFICATION OF DIRECTORS AND OFFICERS
provides for the repayment of advances if the person "is ultimately
found . . .  not to be entitled to the indemnification." On information
and belief, Soundview paid the legal expenses of its employees, all of
whom pled or were convicted, and was not repaid.

Section 725. Section 725 places further limitations on indemnification.

 
LEGISLATIVE HISTORY:

New Bill; May of 2019.

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
January 1st, 2022; provided, however, that rights to indemnification
that accrued prior to such effective date shall be determined by the
not-for-profit corporation law as then in effect, unless the director,
officer or key person elects to have those rights or obligations deter-
mined by the not-for-profit corporation law as amended by this act.

2021-S5513 (ACTIVE) - Bill Text download pdf

                            
 
                     S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                   5513
 
                        2021-2022 Regular Sessions
 
                             I N  S E N A T E
 
                               March 9, 2021
                                ___________
 
 Introduced  by  Sen.  COMRIE -- read twice and ordered printed, and when
   printed to be committed to the Committee on Corporations,  Authorities
   and Commissions
 
 AN  ACT  to amend the not-for-profit corporation law, in relation to the
   indemnification of directors, officers and key persons; and to  repeal
   sections 721, 722 and 723 of the not-for-profit corporation law relat-
   ing thereto
 
   THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
 BLY, DO ENACT AS FOLLOWS:
 
   Section 1. Sections 721, 722 and 723 of the not-for-profit corporation
 law are REPEALED.
   § 2. The not-for-profit corporation law is amended  by  adding  a  new
 section 721 to read as follows:
 § 721. AUTHORIZATION  FOR  INDEMNIFICATION OF DIRECTORS, OFFICERS OR KEY
          PERSONS; INSURANCE.
   (A) A CORPORATION MAY INDEMNIFY ANY DIRECTOR, OFFICER  OR  KEY  PERSON
 AGAINST EXPENSES, INCLUDING JUDGMENTS, FINES, EXCISE TAXES, AMOUNTS PAID
 IN  SETTLEMENT,  ATTORNEYS' FEES, COURT COSTS AND DISBURSEMENTS ACTUALLY
 AND NECESSARILY INCURRED AS A RESULT OF ACTION  OR  PROCEEDING,  OR  ANY
 APPEAL  THEREOF,  ARISING  OUT  OF SERVICE AS A DIRECTOR, OFFICER OR KEY
 PERSON (1) WHO WAS OR IS A PARTY OR IS THREATENED TO BE MADE A PARTY  TO
 ANY  THREATENED,  PENDING  OR  CONTEMPLATED ACTION OR PROCEEDING, OR ANY
 APPEAL THEREOF, WHETHER CIVIL, CRIMINAL, ADMINISTRATIVE OR INVESTIGATIVE
 (INCLUDING AN ACTION BY OR IN THE RIGHT OF THE CORPORATION AND/OR BY ITS
 MEMBERS, IF ANY, OR IN THE RIGHT OF ANY OTHER CORPORATION OF  ANY  KIND,
 DOMESTIC  OR  FOREIGN AND/OR BY ITS MEMBERS, IF ANY), OR BY ANY PARTNER-
 SHIP, JOINT VENTURE, TRUST, EMPLOYEE BENEFIT PLAN OR  OTHER  ENTERPRISE;
 AND  (2)  WHO  HAS MET THE STANDARDS OF CONDUCT SET FORTH IN SECTION 717
 (DUTY OF DIRECTORS AND OFFICERS AND KEY PERSONS) AND ELSEWHERE  IN  THIS
 ARTICLE  AND  WHO IS ENTITLED TO THE PROTECTION OF SECTION 720-A OF THIS
 ARTICLE (LIABILITY OF DIRECTORS, OFFICERS, KEY PERSONS AND TRUSTEES)  TO
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                       [ ] is old law to be omitted.

                                                            LBD10123-01-1

 S. 5513                             2
 
 THE  EXTENT  APPLICABLE,  AND (3) WITH RESPECT TO ANY CRIMINAL ACTION OR
 PROCEEDING, WHO HAD REASONABLE CAUSE TO BELIEVE THAT HER OR HIS  CONDUCT
 WAS  LAWFUL.  A  DIRECTOR,  OFFICER OR KEY PERSON WHO MAY BE INDEMNIFIED
 UNDER  THIS  SECTION SHALL INCLUDE A PERSON (I) WHOSE TESTATOR OR INTES-
 TATE IS OR WAS A DIRECTOR, OFFICER OR KEY PERSON OF THE CORPORATION,  OR
 (II)  WHO IS OR WAS SERVING IN ANY CAPACITY AT THE REQUEST OF THE CORPO-
 RATION AS A DIRECTOR, OFFICER OR  KEY  PERSON  OF  ANOTHER  CORPORATION,
 PARTNERSHIP,  JOINT  VENTURE,  TRUST,  ESTATE,  EMPLOYEE BENEFIT PLAN OR
 OTHER ENTERPRISE.
   (B) THE TERMINATION OF ANY ACTION OR PROCEEDING, INCLUDING  AN  ACTION
 BY  OR  IN  THE RIGHT OF THE CORPORATION AND/OR BY ITS MEMBERS, BY JUDG-
 MENT, ORDER, SETTLEMENT, ADJUDGING LIABILITY TO THE DIRECTOR, OFFICER OR
 KEY PERSON, CONVICTION OR UPON A PLEA OF NOLO CONTENDERE OR  ITS  EQUIV-
 ALENT  SHALL NOT NECESSARILY CREATE A PRESUMPTION THAT THE (1) DIRECTOR,
 OFFICER OR KEY PERSON DID NOT ACT IN ACCORDANCE WITH  THE  STANDARDS  OF
 CARE SET FORTH IN PARAGRAPH (A) OF THIS SECTION, AND (2) WITH RESPECT TO
 ANY  CRIMINAL  ACTION  OR  PROCEEDING,  DID NOT HAVE REASONABLE CAUSE TO
 BELIEVE THAT THE DIRECTOR'S,  OFFICER'S  OR  KEY  PERSON'S  CONDUCT  WAS
 UNLAWFUL.
   (C) NO INDEMNIFICATION SHALL BE MADE BY THE CORPORATION IF SUCH DIREC-
 TOR,  OFFICER  OR  KEY  PERSON  SHALL  HAVE  BEEN ADJUDGED TO BE LIABLE,
 INCLUDING LIABILITY TO THE CORPORATION, UNLESS AND ONLY  TO  THE  EXTENT
 THAT  THE  COURT,  IN WHICH SUCH ACTION OR PROCEEDING WAS BROUGHT, SHALL
 DETERMINE, UPON APPLICATION, THAT, DESPITE THE ADJUDICATION OF LIABILITY
 BUT IN VIEW OF ALL THE CIRCUMSTANCES OF THE CASE, SUCH DIRECTOR, OFFICER
 OR KEY PERSON IS FAIRLY AND REASONABLY ENTITLED TO INDEMNIFICATION  WITH
 RESPECT  TO  ALL  OR  ANY OF THE JUDGMENTS, FINES, EXCISE TAXES, AMOUNTS
 PAID IN SETTLEMENT, ATTORNEYS' FEES, COURT COSTS AND DISBURSEMENTS ACTU-
 ALLY AND NECESSARILY INCURRED, BECAUSE  THE  DIRECTOR,  OFFICER  OR  KEY
 PERSON HAD MADE A GOOD FAITH EFFORT TO MEET THE STANDARDS OF CONDUCT SET
 FORTH IN THIS ARTICLE.
   (D)  EXPENSES,  INCLUDING  ATTORNEYS'  FEES, COURT COSTS AND DISBURSE-
 MENTS, INCURRED BY A DIRECTOR, OFFICER OR KEY PERSON OF THE  CORPORATION
 OR  BY  PERSONS  SERVING AT THE REQUEST OF THE CORPORATION AS DIRECTORS,
 OFFICERS OR KEY  PERSONS  OF  ANOTHER  CORPORATION,  PARTNERSHIP,  JOINT
 VENTURE,  TRUST  OR  OTHER ENTERPRISE, IN DEFENDING ANY CIVIL, CRIMINAL,
 ADMINISTRATIVE OR INVESTIGATIVE ACTION OR  PROCEEDING,  ARISING  OUT  OF
 SUCH  SERVICE,  MAY  BE PAID, IF AUTHORIZED IN ACCORDANCE WITH PARAGRAPH
 (E) OF THIS SECTION, IN ADVANCE OF THE FINAL DISPOSITION OF SUCH  ACTION
 OR  PROCEEDING,  UPON  RECEIPT  BY  THE CORPORATION OF AN UNDERTAKING IN
 ACCORDANCE WITH ARTICLE 25 OF THE CIVIL PRACTICE LAW AND RULES BY OR  ON
 BEHALF  OF  SUCH DIRECTOR, OFFICER OR KEY PERSON TO REPAY SUCH AMOUNT IF
 SHE OR HE SHALL ULTIMATELY BE DETERMINED NOT TO BE ENTITLED TO BE INDEM-
 NIFIED AS AUTHORIZED IN THIS SECTION.
   (E) ANY INDEMNIFICATION OR ADVANCEMENT UNDER THIS SECTION, EXCEPT  FOR
 ONE  ORDERED  BY  A  COURT, SHALL BE MADE ONLY IN THE SPECIFIC ACTION OR
 PROCEEDING UPON A DETERMINATION THAT INDEMNIFICATION OF THE  PRESENT  OR
 FORMER  DIRECTOR,  OFFICER  OR KEY PERSON IS PROPER IN THE CIRCUMSTANCES
 BECAUSE THE PERSON HAS MET OR IN THE CASE OF AN ADVANCE CAN  BE  REASON-
 ABLY  EXPECTED  TO  MEET THE APPLICABLE STANDARD OF CONDUCT SET FORTH IN
 PARAGRAPH (A) OF THIS SECTION:
   (1) BY A MAJORITY VOTE OF THE DIRECTORS OF THE CORPORATION WHO ARE NOT
 PARTIES TO SUCH ACTION OR PROCEEDING, EVEN THOUGH LESS THAN A QUORUM;
   (2) BY A COMMITTEE OF SUCH DIRECTORS DESIGNATED BY  MAJORITY  VOTE  OF
 SUCH DIRECTORS, EVEN THOUGH LESS THAN A QUORUM;

 S. 5513                             3
 
   (3) IF THERE ARE NO SUCH DIRECTORS, OR IF SUCH DIRECTORS SO DIRECT, BY
 INDEPENDENT LEGAL COUNSEL IN A REASONED WRITTEN OPINION; OR
   (4) BY THE MEMBERS, IF ANY.
   (F)  A  RIGHT TO INDEMNIFICATION OR TO ADVANCEMENT OF EXPENSES ARISING
 UNDER A PROVISION OF THE CERTIFICATE OF  INCORPORATION,  A  BYLAW  OR  A
 RESOLUTION  OF  THE  BOARD OR OF A COMMITTEE THEREOF SHALL NOT BE ELIMI-
 NATED OR IMPAIRED BY AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
 THE BYLAWS OR TO THE RESOLUTION AFTER THE OCCURRENCE OF THE ACT OR OMIS-
 SION THAT IS THE SUBJECT  OF  THE  CIVIL,  CRIMINAL,  ADMINISTRATIVE  OR
 INVESTIGATIVE ACTION OR PROCEEDING FOR WHICH INDEMNIFICATION OR ADVANCE-
 MENT  OF  EXPENSES IS SOUGHT, UNLESS THE PROVISION IN EFFECT AT THE TIME
 OF SUCH ACT  OR  OMISSION  EXPLICITLY  AUTHORIZES  SUCH  ELIMINATION  OR
 IMPAIRMENT AFTER SUCH ACTION OR OMISSION HAS OCCURRED.
   (G) A CORPORATION MAY PURCHASE AND MAINTAIN INSURANCE ON BEHALF OF ANY
 PERSON  WHO  IS  OR  WAS A DIRECTOR, OFFICER OR KEY PERSON OF THE CORPO-
 RATION, OR IS OR WAS SERVING AT THE REQUEST  OF  THE  CORPORATION  AS  A
 DIRECTOR,  OFFICER  OR  KEY  PERSON OF ANOTHER CORPORATION, PARTNERSHIP,
 JOINT VENTURE, TRUST, ESTATE,  EMPLOYEE  BENEFIT  OR  OTHER  ENTERPRISE,
 AGAINST  ANY LIABILITY ASSERTED AGAINST SUCH PERSON AND INCURRED BY SUCH
 PERSON IN ANY SUCH CAPACITY, OR ARISING OUT OF SUCH PERSON'S  STATUS  AS
 SUCH,  WHETHER  OR NOT THE CORPORATION WOULD HAVE THE POWER TO INDEMNIFY
 SUCH PERSON AGAINST SUCH LIABILITY UNDER THIS SECTION.
   (H) FOR PURPOSES OF THIS  SECTION,  REFERENCES  TO  "THE  CORPORATION"
 SHALL  INCLUDE,  IN ADDITION TO A CONSOLIDATED OR SURVIVING CORPORATION,
 ANY CONSTITUENT CORPORATION, INCLUDING ANY CONSTITUENT OF A CONSTITUENT,
 ABSORBED IN A CONSOLIDATION OR MERGER WHICH, IF ITS  SEPARATE  EXISTENCE
 HAD  CONTINUED,  WOULD  HAVE  HAD  POWER  AND AUTHORITY TO INDEMNIFY ITS
 DIRECTORS, OFFICERS OR KEY PERSONS THAT ANY  PERSON  WHO  IS  OR  WAS  A
 DIRECTOR,  OFFICER  OR KEY PERSON OF SUCH CONSTITUENT CORPORATION, OR IS
 OR WAS SERVING AT THE REQUEST  OF  SUCH  CONSTITUENT  CORPORATION  AS  A
 DIRECTOR,  OFFICER  OR  KEY  PERSON OF ANOTHER CORPORATION, PARTNERSHIP,
 JOINT VENTURE, TRUST, ESTATE, EMPLOYEE BENEFIT PLAN OR OTHER ENTERPRISE,
 SHALL STAND IN THE SAME POSITION UNDER THIS SECTION WITH RESPECT TO  THE
 RESULTING  OR  SURVIVING  CORPORATION  AS  SUCH  PERSON  WOULD HAVE WITH
 RESPECT TO SUCH CONSTITUENT CORPORATION IF ITS  SEPARATE  EXISTENCE  HAD
 CONTINUED.
   (I)  THE  INDEMNIFICATION  AND ADVANCEMENT OF EXPENSES PROVIDED BY, OR
 GRANTED PURSUANT TO, THIS SECTION SHALL CONTINUE AS TO A PERSON WHO  HAS
 CEASED  TO  BE  A DIRECTOR, OFFICER OR KEY PERSON AND SHALL INURE TO THE
 BENEFIT OF HER OR HIS HEIRS, EXECUTORS AND ADMINISTRATORS IF THAT PERSON
 WAS A DIRECTOR, OFFICER OR KEY PERSON AT THE TIME THE CAUSE OF ACTION OR
 CLAIM AROSE OR PROSECUTION WAS THREATENED OR INFORMATION  OR  INDICTMENT
 WAS FILED.
   (J)  FOR THE PURPOSE OF THIS SECTION, A CORPORATION SHALL BE DEEMED TO
 HAVE REQUESTED A PERSON TO SERVE AN  EMPLOYEE  BENEFIT  PLAN  WHERE  THE
 PERFORMANCE  BY SUCH PERSON OF HER OR HIS DUTIES TO THE CORPORATION ALSO
 IMPOSES DUTIES ON, OR OTHERWISE INVOLVES SERVICES BY, SUCH PERSON TO THE
 PLAN OR PARTICIPANTS OR BENEFICIARIES OF THE PLAN; EXCISE TAXES ASSESSED
 ON A PERSON WITH RESPECT TO AN EMPLOYEE BENEFIT PLAN PURSUANT TO  APPLI-
 CABLE  LAW  SHALL  BE CONSIDERED FINES; AND ACTION TAKEN OR OMITTED BY A
 PERSON WITH RESPECT TO AN EMPLOYEE BENEFIT PLAN IN  THE  PERFORMANCE  OF
 SUCH PERSON'S DUTIES FOR A PURPOSE REASONABLY BELIEVED BY SUCH PERSON TO
 BE  IN  THE  INTEREST  OF THE PARTICIPANTS AND BENEFICIARIES OF THE PLAN
 SHALL BE DEEMED TO BE FOR A PURPOSE WHICH IS NOT  OPPOSED  TO  THE  BEST
 INTERESTS OF THE CORPORATION.

 S. 5513                             4
 
   §  3. Section 724 of the not-for-profit corporation law, as amended by
 chapter 368 of the laws of 1987, paragraph (a) as amended by chapter 549
 of the laws of 2013, is renumbered section 722 and amended  to  read  as
 follows:
 § 722. Indemnification  of directors [and], officers OR KEY PERSONS by a
          court.
   (a) Notwithstanding the failure of a corporation to provide indemnifi-
 cation, and despite any contrary resolution of the board, OF A COMMITTEE
 THEREOF or of the members in the specific case under section  [723]  721
 [(Payment  of indemnification other than by court award)] (AUTHORIZATION
 FOR INDEMNIFICATION OF DIRECTORS, OFFICERS OR KEY  PERSONS;  INSURANCE),
 indemnification  [shall] MAY be awarded by a court to the extent author-
 ized under section [722 (Authorization for indemnification of  directors
 and officers), and paragraph (a) of section 723 (Payment of indemnifica-
 tion  other than by court award)] 721 (AUTHORIZATION FOR INDEMNIFICATION
 OF DIRECTORS, OFFICERS OR KEY PERSONS; INSURANCE).  Application therefor
 shall be made on notice to the attorney general  and  may  be  made,  in
 every case, either:
   (1)  In  the  civil  action  or  proceeding in which the expenses were
 incurred or other amounts were paid, or
   (2) To the supreme court in a separate proceeding, in which  case  the
 application  shall set forth the disposition of any previous application
 made to any court for the same or similar  relief  and  also  reasonable
 cause  for the failure to make application for such relief in the action
 or proceeding in which the expenses were incurred or other amounts  were
 paid.
   (b)  The  application  shall be made in such manner and form as may be
 required by the applicable rules of court or, in the absence thereof, by
 direction of a court to which it is made. Such application shall be upon
 notice to the corporation. The court may  also  direct  that  notice  be
 given  at  the  expense of the corporation to the members and such other
 persons as it may designate in such manner as it may require.
   (c) Where indemnification is sought by judicial action, the court  may
 allow  a  person  such  reasonable  expenses, including attorneys' fees,
 during the pendency of the litigation as  are  necessary  in  connection
 with his defense therein, if the court shall find that the defendant has
 by  his  pleadings or during the course of the litigation raised genuine
 issues of fact or law.
   § 4. Section 725 of the not-for-profit corporation law  is  renumbered
 section 723.
   §  5.  The  section  heading and subdivision (a) of section 723 of the
 not-for-profit corporation law, as amended by chapter 368 of the laws of
 1987 and such section as renumbered  by  section  4  of  this  act,  are
 amended to read as follows:
   Other  provisions  affecting indemnification of directors [and], offi-
          cers AND KEY PERSONS.
   (a) All expenses incurred in defending a civil or criminal  action  or
 proceeding  which  are advanced by the corporation under paragraph [(c)]
 (D) of section [723] 721 [(Payment  of  indemnification  other  than  by
 court  award)] (AUTHORIZATION FOR INDEMNIFICATION OF DIRECTORS, OFFICERS
 OR KEY PERSONS; INSURANCE) or allowed by a court under paragraph (c)  of
 section [724 (Indemnification of directors and officers by a court)] 722
 (INDEMNIFICATION OF DIRECTORS, OFFICERS OR KEY PERSONS BY A COURT) shall
 be  repaid in case the person receiving such advancement or allowance is
 ultimately found, under the procedure set forth in this article, not  to
 be  entitled to indemnification or, where indemnification is granted, to

 S. 5513                             5

 the extent the expenses so advanced by the corporation or allowed by the
 court exceed the indemnification to which he is entitled.
   §  6.  Section 720-a of the not-for-profit corporation law, as amended
 by chapter 445 of the laws of 2019, is amended to read as follows:
 § 720-a. Liability of directors, officers, trustees and key persons.
   Except as provided in sections [seven hundred nineteen] 719 and [seven
 hundred twenty] 720 of this chapter, and except any action or proceeding
 brought by the attorney general or, in the case of a  charitable  trust,
 an  action  or  proceeding against a trustee brought by a beneficiary of
 such trust, no person serving without SALARY OR OTHER compensation as  a
 director,  officer, key person or trustee of a corporation, association,
 organization or trust described in section 501 (c)  (3)  of  the  United
 States  internal  revenue  code shall be liable to any person other than
 such corporation, association, organization or trust based solely on his
 or her conduct in the execution of such office  unless  the  conduct  of
 such director, officer, key person or trustee with respect to the person
 asserting  liability  constituted  gross  negligence  or was intended to
 cause the resulting harm to the person  asserting  such  liability.  For
 purposes  of this section, such a director, officer, key person or trus-
 tee shall not be considered compensated solely by reason of  payment  of
 his  or  her actual expenses incurred in attending meetings or otherwise
 in the execution of such office.
   § 7. This act shall take effect on January 1, 2022, provided, however,
 that rights to indemnification that accrued prior to such effective date
 shall be determined by the not-for-profit corporation  law  as  then  in
 effect,  unless the director, officer or key person elects to have those
 rights or obligations determined by the not-for-profit  corporation  law
 as amended by this act.

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