BILL NUMBER: AB 2122	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  MAY 9, 2006
	AMENDED IN ASSEMBLY  MARCH 29, 2006

INTRODUCED BY   Assembly Member Klehs
    (   Coauthor:   Assembly Member  
Calderon   ) 

                        FEBRUARY 17, 2006

   An act to amend Sections 501 and 506 of the Corporations Code,
relating to corporations.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2122, as amended, Klehs  Distributions: unpaid pension
obligations.
   Existing law, the General Corporation Law, provides for the
operation of a corporation, including distributions made to its
shareholders. Under existing law, a corporation and its subsidiaries
are prohibited from making a distribution if doing so would make the
corporation or its subsidiary unable to meet liabilities as they
mature. Existing law makes a shareholder who receives such a
prohibited distribution, with knowledge of its impropriety, liable to
the corporation for the dividend payment  
amount received  , plus interest.
   This bill would additionally prohibit a corporation and its
subsidiaries from making a distribution if either has failed to
 pay a pension obligation   make a payment under
a defined benefit plan, as defined, owed by the corporation or
subsidiary  . The bill would also make a  shareholder
  board member of the corporation  who received a
distribution prohibited by this provision liable to the corporation
for the  dividend payment   amount received
 , plus interest, regardless of whether he or she had knowledge
of its impropriety.
   Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 501 of the Corporations Code is amended to
read:
   501.  (a) Neither a corporation nor any of its subsidiaries shall
make any distribution to the corporation's shareholders (Section 166)
if the corporation or the subsidiary making the distribution is, or
as a result thereof would be, likely to be unable to meet its
liabilities (except those whose payment is otherwise adequately
provided for) as they mature.
   (b) Notwithstanding any other provision of law, neither a
corporation nor any of its subsidiaries shall make a distribution to
the corporation's shareholders, as defined in Section 166, if the
corporation or the subsidiary making the distribution has failed to
 pay a pension obligation   make a payment under
a defined benefit plan, as defined by subsection (j) of Section 414
of Title 26 of the United States Code,  owed by the corporation
or the subsidiary.
  SEC. 2.  Section 506 of the Corporations Code is amended to read:
   506.  (a)  (1)    A shareholder who receives a
distribution prohibited by this chapter with knowledge of facts
indicating the  impropriety thereof or a shareholder who
receives a distribution made in violation of subdivision (b) of
Section 501 with or without knowledge of facts indicating its
impropriety is liable to  impropriety thereof is l 
 iable to  the corporation for the benefit of all of the
creditors or shareholders entitled to institute an action under
subdivision (b) for the amount so received by the shareholder with
interest thereon at the legal rate on judgments until paid, but not
exceeding the liabilities of the corporation owed to nonconsenting
creditors at the time of the violation and the injury suffered by
nonconsenting shareholders, as the case may be. For purposes of this
chapter, if a shareholder receives any distribution of the
corporation's property that is prohibited by this chapter, the
shareholder receiving that illegal distribution shall be liable to
the corporation for an amount equal to the fair market value of the
property at the time of the illegal distribution plus interest
thereon from the date of the distribution at the legal rate on
judgments until paid, together with all reasonably incurred costs of
appraisal or other valuation, if any, of that property, but not
exceeding the liabilities of the corporation owed to nonconsenting
creditors at the time of the violation and the injury suffered by
nonconsenting shareholders, as the case may be.  
   (2) A board member of the corporation who receives a distribution
in violation of subdivision (b) of Section 501 with or without
knowledge of facts indicating its impropriety is subject to the same
liability as imposed on a shareholder who receives a distribution
with knowledge of its impropriety, as described in paragraph (1).

   (b) Suit may be brought in the name of the corporation to enforce
the liability (1) to creditors arising under subdivision (a) for a
violation of Section 500 or 501 against any or all shareholders
liable by any one or more creditors of the corporation whose debts or
claims arose prior to the time of the distribution to shareholders
and who have not consented thereto, whether or not they have reduced
their claims to judgment, or (2) to shareholders arising under
subdivision (a) for a violation of Section 502 or 503 against any or
all shareholders liable by any one or more holders of preferred
shares outstanding at the time of the distribution who have not
consented thereto, without regard to the provisions of Section 800.
   (c) Any shareholder sued under this section may implead all other
shareholders liable under this section and may compel contribution,
either in that action or in an independent action against
shareholders not joined in that action.
   (d) Nothing contained in this section affects any liability that a
shareholder may have under Chapter 1 (commencing with Section 3439)
of Title 2 of Part 2 of Division 4 of the Civil Code.