Illinois General Assembly - Full Text of SB1872
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Full Text of SB1872  102nd General Assembly

SB1872ham001 102ND GENERAL ASSEMBLY

Rep. Deanne M. Mazzochi

Filed: 5/7/2021

 

 


 

 


 
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1
AMENDMENT TO SENATE BILL 1872

2    AMENDMENT NO. ______. Amend Senate Bill 1872 by replacing
3everything after the enacting clause with the following:
 
4    "Section 5. The Business Corporation Act of 1983 is
5amended by adding Article 1A as follows:
 
6    (805 ILCS 5/Art. 1A heading new)
7
ARTICLE 1A. RATIFICATION AND VALIDATION
8
OF DEFECTIVE CORPORATE ACTIONS

 
9    (805 ILCS 5/1A.05 new)
10    Sec. 1A.05. Definitions. In this Article:
11    "Board" means the board of directors.
12    "Corporate action" means any action taken by:
13        (1) or on behalf of a corporation;
14        (2) the incorporators;
15        (3) the board;

 

 

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1        (4) a committee of the board;
2        (5) an officer or agent of the corporation; or
3        (6) the shareholders.
4    "Date of the defective corporate action" means the date
5(or the approximate date, if the exact date is unknown) the
6potentially defective corporate action was purported to have
7been taken.
8    "Defective corporate action" means any corporate action
9taken or purportedly taken that is, and at the time such
10corporate action was taken or purportedly taken would have
11been, within the power of the corporation without regard to
12the failure of authorization identified in item (3) of
13subsection (a) of Section 1A.15, but with respect to which
14proper documentation is not presently available, or that is or
15may be shown to have been void or voidable due to a failure or
16possible failure of authorization or of the documentation
17thereof.
18    "Failure of authorization" means the failure to authorize,
19approve, or otherwise effect a corporate action in compliance
20with this Act, the articles of incorporation or by-laws, a
21corporate resolution or any plan or agreement to which the
22corporation is a party, or the disclosure set forth in any
23proxy or consent solicitation statement, if and to the extent
24such failure would render such corporate action void or
25voidable.
26    "Validation effective time" with respect to any defective

 

 

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1corporate action ratified or validated under this Article
2means the latest of:
3        (1) the time at which the ratification of the
4    defective corporate action is approved by the shareholders
5    or, if approval of shareholders is not required, the time
6    at which the notice required by Section 1A.25 becomes
7    effective;
8        (2) the time at which any articles of validation filed
9    in accordance with Section 1A.35 become effective; and
10        (3) if the corporation or any successor entity to the
11    corporation brings an application for validation under
12    subsection (a) of Section 1A.40, the time at which the
13    circuit court determines such validity or at such other
14    time as the circuit court may determine in accordance with
15    subsection (b) of Section 1A.40.
16The validation effective time shall not be affected by the
17filing or pendency of a judicial proceeding under Section
181A.40 or otherwise unless the corporation or any successor
19entity to the corporation initiates the application for
20validation under subsection (a) of Section 1A.40 or unless
21otherwise ordered by the circuit court.
 
22    (805 ILCS 5/1A.10 new)
23    Sec. 1A.10. Defective corporate actions.
24    (a) A defective corporate action shall not be void or
25voidable if ratified in accordance with Section 1A.15 or

 

 

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1validated in accordance with Section 1A.40.
2    (b) Ratification under Section 1A.15 or validation under
3Section 1A.40 shall not be deemed to be the exclusive means of
4ratifying or validating any defective corporate action and the
5absence or failure of ratification or validation in accordance
6with this Article shall not, of itself, affect the validity or
7effectiveness of any corporate action that was or may be shown
8to have been properly taken or ratified under common law or
9otherwise, nor shall it create a presumption that any such
10corporate action is or was a defective corporate action or
11void or voidable.
 
12    (805 ILCS 5/1A.15 new)
13    Sec. 1A.15. Ratification of defective corporate actions.
14    (a) To ratify a defective corporate action under this
15Section (other than the ratification of an election or
16designation of the initial directors under subsection (b)),
17the board shall take action ratifying the action in accordance
18with Section 1A.20, stating:
19        (1) the defective corporate action to be ratified;
20        (2) the date of the defective corporate action;
21        (3) the nature of the failure of authorization with
22    respect to the defective corporate action to be ratified;
23    and
24        (4) that the board approves the ratification of the
25    defective corporate action.

 

 

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1    (b) If a defective corporate action to be ratified relates
2to the election or designation of the initial directors of the
3corporation, regardless of whether the initial directors are
4set forth in the articles of incorporation pursuant to item
5(1) of subsection (b) of Section 2.10, a majority of the
6persons who, at the time of the ratification, are exercising
7the powers of directors may take an action stating:
8        (1) the name of the person or persons who first took
9    action in the name of the corporation as the initial
10    directors of the corporation;
11        (2) the earlier of the date on which such person or
12    persons first took such action or were purported to have
13    been elected or designated as the initial directors; and
14        (3) that the ratification of the election or
15    designation of such person or persons as the initial
16    directors is approved.
17    (c) If:
18        (1) any provision of this Act, the articles of
19    incorporation or by-laws, any corporate resolution or any
20    plan or agreement to which the corporation is a party in
21    effect at the time action under subsection (a) is taken
22    requires shareholder approval or would have required
23    shareholder approval at the date of the occurrence of the
24    defective corporate action, or
25        (2) the action under subsection (a) is to ratify a
26    defective corporate action due to a failure to comply with

 

 

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1    either or both of Sections 7.85 and 11.75,
2then the ratification of the defective corporate action
3approved in the action taken by the board under subsection (a)
4shall be submitted to the shareholders for approval.
5    (d) Unless otherwise provided in the action taken by the
6board under subsection (a), after the action by the board has
7been taken and, if required, approved by the shareholders, the
8board may abandon the ratification at any time before the
9validation effective time without further action of the
10shareholders.
 
11    (805 ILCS 5/1A.20 new)
12    Sec. 1A.20. Action on ratification.
13    (a) The quorum and voting requirements applicable to a
14ratifying action by the board under subsection (a) of Section
151A.15 shall be the quorum and voting requirements applicable
16to the corporate action proposed to be ratified at the time
17such ratifying action is taken; provided, however, that if the
18articles of incorporation or by-laws of the corporation, any
19plan or agreement to which the corporation was a party, or any
20provision of this Act, in each case as in effect as of the time
21of the defective corporate action, would have required a
22larger number or portion of directors or of specified
23directors for a quorum to be present or to approve the
24defective corporate action, such larger number or portion of
25such directors or such specified directors shall be required

 

 

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1for a quorum to be present or to adopt the resolutions to
2ratify the defective corporate action, as applicable, except
3that the presence or approval of any director elected,
4appointed, or nominated by holders of any class or series of
5which no shares are then outstanding, or by any person who is
6no longer a shareholder, shall not be required.
7    (b) If the ratification of the defective corporate action
8requires approval by the shareholders under subsection (c) of
9Section 1A.15, and if the approval is to be given at a meeting,
10the corporation shall notify each holder of shares, regardless
11of whether entitled to vote as of:
12        (1) the record date for notice of the meeting, and
13        (2) the date of the occurrence of the defective
14    corporate action (or, in the case of any defective
15    corporate action that involved the establishment of a
16    record date for notice of or voting at any meeting of
17    shareholders, for informal action by shareholders in lieu
18    of a meeting, or for any other purpose, the record date for
19    notice of or voting at such meeting, the record date for
20    informal action by written consent, or the record date for
21    such other action, as the case may be),
22provided that in each case notice shall not be required to be
23given to holders of shares whose identities or addresses for
24notice cannot be determined from the records of the
25corporation. The notice must state that the purpose, or one of
26the purposes, of the meeting, is to consider ratification of a

 

 

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1defective corporate action and must be accompanied by:
2        (A) either a copy of the action taken by the board in
3    accordance with subsection (a) of Section 1A.15 or the
4    information required by items (1) through (4) of
5    subsection (a) of Section 1A.15, and
6        (B) a statement that any claim that the ratification
7    of such defective corporate action should not be
8    effective, or should be effective only on certain
9    conditions, shall be brought within 120 days from the
10    applicable validation effective time.
11    (c) The quorum and voting requirements applicable to the
12approval by the shareholders required by subsection (c) of
13Section 1A.15 shall be the quorum and voting requirements
14applicable to the corporate action proposed to be ratified at
15the time of such shareholder approval; provided, however,
16that:
17        (1) If the articles of incorporation or by-laws of the
18    corporation, any plan or agreement to which the
19    corporation was a party, or any provision of this Act in
20    effect as of the time of the defective corporate action
21    would have required a larger number or portion of stock or
22    of any class or series thereof or of specified
23    shareholders for a quorum to be present or to approve the
24    defective corporate action, the presence or approval of
25    such larger number or portion of stock or of such class or
26    series thereof or of such specified shareholders shall be

 

 

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1    required for a quorum to be present or to approve the
2    ratification of the defective corporate action, as
3    applicable, except that the presence or approval of shares
4    of any class or series of which no shares are then
5    outstanding, or of any person that is no longer a
6    shareholder, shall not be required.
7        (2) The approval by shareholders to ratify the
8    election of a director requires the affirmative vote of
9    the majority of the votes of the shares which are
10    represented at a meeting at which a quorum is present and
11    entitled to vote on the matter, except that if the
12    articles of incorporation or by-laws of the corporation
13    then in effect or in effect at the time of the defective
14    election require or required a larger number or portion of
15    stock or of any class or series thereof or of specified
16    shareholders to elect such director, the affirmative vote
17    of such larger number or portion of stock or of any class
18    or series thereof or of such specified shareholders shall
19    be required to ratify the election of such director,
20    except that the presence or approval of shares of any
21    class or series of which no shares are then outstanding,
22    or of any person that is no longer a shareholder, shall not
23    be required.
24        (3) In the event of a failure of authorization
25    resulting from a failure to comply with the provisions of
26    Section 7.85, the ratification of the defective corporate

 

 

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1    action shall require the vote of shareholders set forth in
2    subsection B of Section 7.85, regardless of whether such
3    vote would have otherwise been required. In the event of a
4    failure of authorization resulting from a failure to
5    comply with Section 11.75, the ratification of the
6    defective corporate action shall require the vote of
7    shareholders set forth in clause (3) of subsection (a) of
8    Section 11.75, regardless of whether such vote would have
9    otherwise been required.
 
10    (805 ILCS 5/1A.25 new)
11    Sec. 1A.25. Notice requirements.
12    (a) Unless (1) shareholder approval is required under
13subsection (c) of Section 1A.15 and (2) shareholder approval
14is to be given at a meeting of shareholders in accordance with
15subsection (b) of Section 1A.20, rather than by informal
16action of shareholders pursuant to Section 7.10, prompt notice
17of an action taken under Section 1A.15 shall be given to each
18holder of shares, regardless of whether entitled to vote, as
19of:
20        (A) the date of such action by the board; and
21        (B) the date of the defective corporate action
22    ratified (or, in the case of any defective corporate
23    action that involved the establishment of a record date
24    for notice of or voting at any meeting of shareholders,
25    for informal action by shareholders in lieu of a meeting,

 

 

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1    or for any other purpose, the record date for notice of or
2    voting at such meeting, the record date for informal
3    action by written consent, or the record date for such
4    other action, as the case may be);
5provided that in each case notice shall not be required to be
6given to holders of shares whose identities or addresses for
7notice cannot be determined from the records of the
8corporation.
9    (b) The notice must contain:
10        (1) either a copy of the action taken by the board in
11    accordance with subsection (a) or (b) of Section 1A.15 or
12    the information required by items (1) through (4) of
13    subsection (a) or items (1) through (3) of subsection (b)
14    of Section 1A.15, as applicable, and
15        (2) a statement that any claim that the ratification
16    of the defective corporate action should not be effective,
17    or should be effective only on certain conditions, shall
18    be brought within 120 days from the applicable validation
19    effective time.
20    (c) No notice under this Section is required with respect
21to any action required to be submitted to shareholders for
22approval under subsection (c) of Section 1A.15 if notice is
23given in accordance with subsection (b) of Section 1A.20.
24    (d) A notice required by this Section may be given in any
25manner permitted by the by-laws of the corporation or, if the
26by-laws are silent, this Act. In addition, for any corporation

 

 

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1subject to the reporting requirements of Section 13 or Section
215(d) of the Securities Exchange Act of 1934, or the
3corresponding provisions of any subsequent federal securities
4laws, rules, or regulations, a notice required by this Section
5or by subsection (b) of Section 1A.20 may be given by means of
6a filing or furnishing of such notice with the United States
7Securities and Exchange Commission.
 
8    (805 ILCS 5/1A.30 new)
9    Sec. 1A.30. Effect of ratification and validation. From
10and after the validation effective time, and without regard to
11the 120-day period during which a claim may be brought under
12Section 1A.40:
13        (1) each defective corporate action ratified in
14    accordance with Section 1A.15 shall not be void or
15    voidable as a result of the failure of authorization
16    identified in the action taken under subsection (a) or (b)
17    of Section 1A.15 and shall be deemed a valid corporate
18    action effective as of the date of the defective corporate
19    action; and
20        (2) any corporate action taken subsequent to and in
21    direct or indirect reliance on any defective corporate
22    action that is ratified or validated in accordance with
23    this Article and all corporate actions, including any
24    subsequent defective corporate action, resulting directly
25    or indirectly therefrom shall be valid as of the time

 

 

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1    taken.
 
2    (805 ILCS 5/1A.35 new)
3    Sec. 1A.35. Filings.
4    (a) If the defective corporate action ratified under this
5Article would have required under any other Section of this
6Act a filing in accordance with this Act, then, regardless of
7whether a filing was previously made in respect of such
8defective corporate action, the corporation shall make the
9correct or corrected filing otherwise required by this Act,
10and the corporation shall file articles of validation in
11accordance with this Section.
12    (b) The articles of validation must set forth:
13        (1) the defective corporate action that is the subject
14    of the articles of validation;
15        (2) the date of the defective corporate action;
16        (3) the nature of the failure of authorization in
17    respect of the defective corporate action;
18        (4) a statement that the defective corporate action
19    was ratified in accordance with Section 1A.15, including
20    the date on which the board ratified such defective
21    corporate action and the date, if any, on which the
22    shareholders approved the ratification of such defective
23    corporate action; and
24        (5) the information required by subsection (c).
25    (c) The articles of validation must also contain the

 

 

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1following information:
2        (1) if a filing was previously made in respect of the
3    defective corporate action and no changes to such filing
4    are required to give effect to the ratification of such
5    defective corporate action in accordance with Section
6    1A.15, the articles of validation must set forth (i) the
7    name, title, and filing date of the filing previously made
8    and any statement of correction to that filing and (ii) a
9    statement that a copy of the filing previously made,
10    together with any statement of correction to that filing,
11    is attached as an exhibit to the articles of validation;
12        (2) if a filing was previously made in respect of the
13    defective corporate action and such filing requires any
14    change to give effect to the ratification of such
15    defective corporate action in accordance with Section
16    1A.15, the articles of validation must set forth (i) the
17    name, title and filing date of the filing previously made
18    and any statement of correction to that filing, (ii) a
19    statement that a filing containing all of the information
20    required to be included under the applicable Section or
21    Sections of this Act to give effect to such defective
22    corporate action is attached as an exhibit to the articles
23    of validation, and (iii) the date and time that such
24    filing is deemed to have become effective; or
25        (3) if a filing was not previously made in respect of
26    the defective corporate action and the defective corporate

 

 

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1    action ratified under Section 1A.15 would have required a
2    filing under any other Section of this Act, the articles
3    of validation must set forth (i) a statement that a filing
4    containing all of the information required to be included
5    under the applicable Section or Sections of this Act to
6    give effect to such defective corporate action is being
7    filed at the same time as the articles of validation, and
8    (ii) the date and time that such filing is deemed to have
9    become effective.
 
10    (805 ILCS 5/1A.40 new)
11    Sec. 1A.40. Judicial proceedings regarding validity of
12corporate actions.
13    (a) Upon application to the circuit court of the county in
14which either the registered office or principal office of the
15corporation is located by the corporation, any successor
16entity to the corporation, a director of the corporation, any
17shareholder, beneficial shareholder or unrestricted voting
18trust beneficial owner of the corporation, including any such
19shareholder, beneficial shareholder or unrestricted voting
20trust beneficial owner as of the date of the defective
21corporate action ratified under Section 1A.15, or any other
22person claiming to be substantially and adversely affected by
23a ratification under Section 1A.15, the circuit court may:
24        (1) determine the validity and effectiveness of any
25    corporate action or defective corporate action;

 

 

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1        (2) determine the validity and effectiveness of any
2    ratification under Section 1A.15; and
3        (3) modify or waive any of the procedures specified in
4    Section 1A.15 or Section 1A.20 to ratify a defective
5    corporate action.
6    (b) In connection with an action under this Section, the
7circuit court may make such findings or orders, and take into
8account any factors or considerations, regarding such matters
9as it deems proper under the circumstances.
10    (c) Service of process of the application under subsection
11(a) on the corporation may be made in any manner provided by
12statute of this State or by rule of the applicable court for
13service on the corporation, and no other party need be joined
14in order for the court to adjudicate the matter. In an action
15filed by the corporation, the court may require notice of the
16action be provided to other persons specified by the court and
17permit such other persons to intervene in the action.
18    (d) Notwithstanding any other provision of this Section or
19otherwise under applicable law, any action asserting that the
20ratification of any defective corporate action should not be
21effective, or should be effective only on certain conditions,
22shall be brought within 120 days of the validation effective
23time.".