The Board has decided to revise its by-laws and proprietary lease. Now what?
It is a familiar story: the co-op corporation had antiquated by-laws and proprietary lease. Poorly drafted, rife with internal inconsistencies, conflicts with current law, no longer relevant provisions regarding the original sponsor, not adequately meeting the current needs of the co-op. The time had clearly come, and the Board asked its attorneys to draft revised documents. And that is where the story ends for far too many Boards. Because preparing revised documents is the easy part. But getting to the desired result, obtaining approval of two-thirds of the shareholders, is the hard part. Which we helped our client achieve.
First, making sure the entire Board supports ALL of the proposed changes. Revisions that are endorsed by only 4 out of 7 Board members will never garner support of sufficient shareholders. We worked tirelessly with the Board, revising, tweaking, adding and amending the proposed changes until we had a document that the Board unanimously supported.
Then, presentation to the shareholders. Will the revisions be presented to the shareholders as all or nothing? Will a piecemeal approach run the risk of so eviscerating the changes that all the effort will yield no meaningful result? Together with the Board, we devised a hybrid approach. We organized the proposed revisions into a few meaningful groups: those that brought the corporation into compliance with laws and current practices of well run buildings; those that eliminated no longer relevant provisions, and those that affected quality of life and the Board’s ability to effectively manage the building.
The materials were sent to the shareholders, together with proxies and ballots. The Board members actively solicited the shareholders’ support. The date of the annual meeting arrived, and it appeared that the overwhelming majority of those present were in favor of the changes. Success? No. Only slightly more than 50% of the shares were represented at the meeting, making it impossible to achieve the necessary 2/3 approval. If the proposals were put to vote, months of effort would have been for naught and the process would have to begin again next year. Instead of letting that happen, we advised our client to take the following procedural steps. First, to not have the voting proceed. To accomplish that, a motion was made, seconded and voted upon to postpone the vote to a later date. And then, rather than conclude the annual meeting, a motion was made to adjourn the meeting to a date to be determined. Had the meeting concluded, the ballots and proxies would be of no use for the next meeting.. But by adjourning to a later date, we kept the meeting and proxies “alive” saving the directors from going back to the people who had already voted, and allowed them to focus exclusively on collecting proxies from those who had not yet voted. Additionally, by adjourning to a date to be determined, the Board could wait until it knew sufficient votes were in hand, and only then reconvene the meeting for the purpose of voting. Once in hand, the meeting was reconvened, the voting (by now, a mere formality) took place, and the new documents took effect.