TITLE OF BILL:
An act to amend the public authorities law, in relation to the powers and duties of the dormitory authority of the state of New York relative to the establishment of subsidiaries for certain purposes
The bill would authorize the Dormitory Authority of the State of New York ("DASNY") to form a subsidiary for the purpose of exercising certain rights of DASNY, consistent with Public Authorities Law §2827-a, in connection with taking title to certain real property on which DASNY holds one or more mortgages to secure loans made by DASNY to North General Hospital ("North General").
SUMMARY OF PROVISIONS:
Section 1 of the bill would add a new subdivision 25 to PAL § 1678 to authorize DASNY to create a subsidiary for the purpose of limiting the potential liability of DASNY when exercising its powers and duties in connection with the exercise of remedies by DASNY against North General, an eligible secured borrower (as defined in chapter 590 of the laws of 2002) located in the borough of Manhattan, New York. Among the powers that could be exercised by this subsidiary would be: (i) bidding for, taking, holding, selling; conveying, assigning or transferring title to the mortgaged property; (ii) entering into leases, subleases, operating agreements, security agreements, loan agreements or other encumbrances or arrangements with regard to such property; or (iii) assuming any indebtedness or other liabilities secured by the mortgaged property.
New subdivision 25 would also provide that, notwithstanding any other provision of law to the contrary but in all instances subject to the provisions of any contract with bondholders, the transfer of title to such subsidiary or any other actions taken by DASNY or the subsidiary to enforce DASNY's rights under the mortgage or other security interest would not impair the validity of the bonds, notes or other obligations to which the mortgage or other security interest relates.
New subdivision 25 would specify that the subsidiary be created as a public benefit corporation. The creation of a subsidiary, and the reporting required in connection therewith, would be in compliance with PAL § 2827-a.
Section 2 of this bill would make it effective immediately.
This is a new bill.
PAL § 2827-a, enacted in Chapter 506 of the laws of 2009, severely limits the ability of public authorities to create subsidiary
corporations without legislative approval. That section further provides that nothing contained therein grants an authority the power to create a subsidiary where the authority does not otherwise have the power to do so. DASNY currently has no power to create subsidiaries.
STATEMENT IN SUPPORT:
On July 2, 2010 North General filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code and has since ceased all healthcare operations. The current Plan of Reorganization (Liquidation) filed by North General (the "Plan") provides that DASNY shall receive fee simple title to the property on which DASNY hold mortgages, subject to two leases, in satisfaction of its secured claims against North General. North General is currently in default under its loan agreements with DASNY and an event of default has been declared. One of the referenced leases is expected to be a long term lease with the New York City Health and Hospitals Corporation ("HHC") under which HHC will operate a long term acute care hospital in the former main hospital building of North General. The other lease to be assigned to DASNY under the Plan is with Institute for Family Health, which currently operates a federally qualified health care center in part of the former North General building.
The purpose of this bill is to enable DASNY to create a subsidiary for the purpose of taking title to mortgaged property that is to be conveyed to DASNY under the Plan, to insulate DASNY and its assets from any potential liability that could arise from accepting title to this property. Although DASNY will have no role in the ongoing health care activities conducted there or the operation and maintenance of the properties, there is the potential that that DASNY, as owner of the property, could be subjected to lawsuits as the owner of the property arising out of incidents occurring on the campus. In addition, it is also possible that DASNY could be exposed to potential liabilities from the presence of hazardous substances on the property. DASNY could avoid these potential liabilities by having title to the mortgaged property transferred to the subsidiary authorized to be created under the bill instead of DASNY.
PAL § 2827-a provides that no state authority shall have the power to organize any subsidiary corporation, except under certain limited circumstances, unless the legislature shall have enacted a law granting an authority that power. Consistent with this provision, the bill would grant legislative authorization to DASNY to create a subsidiary for the limited purpose of exercising DASNY's rights under the mortgages granted to DASNY by North General.
The bill would have no fiscal impact on the State or localities, except to the extent it would shield DASNY from potential liabilities.
The bill would take effect immediately.
STATE OF NEW YORK ________________________________________________________________________ 14 Third Extraordinary Session IN SENATE December 3, 2010 ___________Introduced by COMMITTEE ON RULES -- (at request of the Governor) -- read twice and ordered printed, and when printed to be committed to the Committee on Rules AN ACT to amend the public authorities law, in relation to the powers and duties of the dormitory authority of the state of New York rela- tive to the establishment of subsidiaries for certain purposes THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Section 1678 of the public authorities law is amended by adding a new subdivision 25 to read as follows: 25. (A) TO FORM A SUBSIDIARY FOR THE PURPOSE OF LIMITING THE POTENTIAL LIABILITY OF THE AUTHORITY WHEN EXERCISING THE POWERS AND DUTIES CONFERRED UPON THE AUTHORITY BY ARTICLE EIGHT OF THIS CHAPTER IN CONNECTION WITH THE EXERCISE OF REMEDIES BY THE AUTHORITY AGAINST NORTH GENERAL HOSPITAL, AN ELIGIBLE SECURED BORROWER (AS DEFINED IN CHAPTER FIVE HUNDRED NINETY OF THE LAWS OF TWO THOUSAND TWO) LOCATED IN THE BOROUGH OF MANHATTAN, NEW YORK THAT HAS DEFAULTED IN ITS OBLIGATIONS UNDER ITS LOAN AGREEMENT OR MORTGAGE WITH THE AUTHORITY AND FOR WHICH AN EVENT OF DEFAULT HAS BEEN DECLARED BY THE AUTHORITY. SUCH SUBSIDIARY CREATED PURSUANT TO THIS SUBDIVISION MAY EXERCISE AND PERFORM ONE OR MORE OF THE PURPOSES, POWERS, DUTIES, FUNCTIONS, RIGHTS AND RESPONSIBIL- ITIES OF THE AUTHORITY OTHER THAN THE ISSUANCE OF INDEBTEDNESS, IN CONNECTION WITH REAL AND PERSONAL PROPERTY WITH RESPECT TO WHICH THE AUTHORITY HOLDS OR HELD A MORTGAGE, SECURITY INTEREST OR OTHER COLLAT- ERAL INTEREST INCLUDING: (I) BIDDING FOR, TAKING, HOLDING, SELLING, CONVEYING, ASSIGNING OR TRANSFERRING TITLE TO SUCH PROPERTY; (II) ENTER- ING INTO LEASES, SUBLEASES, OPERATING AGREEMENTS, SECURITY AGREEMENTS, LOAN AGREEMENTS OR OTHER ENCUMBRANCES OR ARRANGEMENTS WITH REGARD TO SUCH PROPERTY AND ACTING IN A MANNER CONSISTENT WITH THE RIGHTS, OBLI- GATIONS OR RESPONSIBILITIES OF THE OWNER OF SUCH PROPERTY PURSUANT TO SUCH AGREEMENTS OR ENCUMBRANCES; (III) ASSUMING ANY INDEBTEDNESS OREXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD12326-03-0 S. 14 2
OTHER LIABILITIES SECURED BY SUCH PROPERTY. NOTWITHSTANDING ANY OTHER PROVISION OF LAW TO THE CONTRARY, BUT IN ALL INSTANCES SUBJECT TO THE PROVISIONS OF ANY CONTRACT WITH BONDHOLDERS, THE TRANSFER OF TITLE TO SUCH SUBSIDIARY OR ANY OTHER ACTIONS TAKEN BY THE AUTHORITY OR THE SUBSIDIARY TO ENFORCE THE AUTHORITY'S RIGHTS UNDER THE MORTGAGE, SECURI- TY INTEREST OR OTHER COLLATERAL INTEREST OR TO PROTECT, ACQUIRE, MANAGE OR DISPOSE OF THE PROPERTY SHALL BE DEEMED TO BE A CORPORATE PURPOSE OF THE AUTHORITY AND SHALL NOT IMPAIR THE VALIDITY OF ANY BONDS, NOTES OR OTHER OBLIGATIONS OF THE AUTHORITY TO WHICH THE MORTGAGE, SECURITY INTEREST OR OTHER COLLATERAL INTEREST RELATES. (B) SUCH SUBSIDIARY AUTHORIZED BY PARAGRAPH (A) OF THIS SUBDIVISION SHALL BE ESTABLISHED IN THE FORM OF A PUBLIC BENEFIT CORPORATION BY EXECUTING AND FILING WITH THE SECRETARY OF STATE A CERTIFICATE OF INCOR- PORATION WHICH SHALL IDENTIFY THE AUTHORITY AS THE ENTITY ORGANIZING SUCH SUBSIDIARY AND SET FORTH THE NAME OF SUCH SUBSIDIARY PUBLIC BENEFIT CORPORATION, ITS DURATION, THE LOCATION OF ITS PRINCIPAL OFFICE AND ITS CORPORATE PURPOSES AS PROVIDED IN THIS SUBDIVISION AND WHICH CERTIFICATE MAY BE AMENDED FROM TIME TO TIME BY THE FILING OF AMENDMENTS THERETO WITH THE SECRETARY OF STATE. SUCH SUBSIDIARY SHALL BE ORGANIZED AS A PUBLIC BENEFIT CORPORATION, SHALL BE A BODY POLITIC AND CORPORATE, AND SHALL HAVE ALL THE PRIVILEGES, IMMUNITIES, TAX EXEMPTIONS AND OTHER EXEMPTIONS OF THE AUTHORITY. THE MEMBERS OF SUCH SUBSIDIARY SHALL BE THE SAME AS THE MEMBERS OF THE AUTHORITY AND THE PROVISIONS OF SUBDIVISION TWO OF SECTION SIXTEEN HUNDRED NINETY-ONE OF THIS TITLE SHALL IN ALL RESPECTS APPLY TO SUCH MEMBERS WHEN ACTING IN SUCH CAPACITY. (C) NOTHING IN THIS SUBDIVISION SHALL BE CONSTRUED TO IMPOSE ANY LIABILITIES, OBLIGATIONS OR RESPONSIBILITIES OF SUCH SUBSIDIARY UPON THE AUTHORITY AND THE AUTHORITY SHALL HAVE NO LIABILITY OR RESPONSIBIL- ITY THEREFOR UNLESS THE AUTHORITY EXPRESSLY AGREES TO ASSUME THE SAME. (D) SUCH SUBSIDIARY CREATED PURSUANT TO THIS SUBDIVISION SHALL BE SUBJECT TO ANY OTHER PROVISION OF THIS CHAPTER PERTAINING TO SUBSID- IARIES OF PUBLIC AUTHORITIES. S 2. This act shall take effect immediately.