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New rule spans fiduciary duties CU conversions
ALEXANDRIA, Va. (12/17/10)—To help federal credit union directors better carry out their fiduciary duties, the National Credit Union Administration is, for the first time, adopting a formal requirement that those directors not only carry out their duties in good faith, but also have or gain an understanding of “basic finance and accounting practices.” The rule, adopted by the agency at its Thursday open board meeting, also strips federal credit unions of the ability to indemnify officials or employees for liability associated with misconduct that is “grossly negligent, reckless, or willful” in connection with a decision that affects the fundamental rights of the credit union’s members. This rule on indemnification only applies to decisions affecting members’ “fundamental rights”--such as in a merger or conversion--and also only applies if a court has determined that the official or employee acted in a grossly negligent or reckless manner, or willfully engaged in misconduct. A separate proposed rule on indemnification that applies in more situations has not yet been finalized by the agency. Procedural and substantive requirements for converting a credit union to a bank through a merger are also addressed by the rule change. The revisions are designed to better protect the secrecy and integrity of the voting process and include such things as a new definition of the term “secret ballot.” The new definition is intended to prohibit credit union employees from helping members complete ballots or handling completed ballots. The new requirements, effective 30 days after publication in the Federal Register, applies to direct mergers as well as transactions where a credit union first converts to a mutual savings bank (MSB) and then merges with another bank without ever operating as a stand-alone MSB. Finally, the proposed amendments to Parts 708a and 708b revise existing rules to enhance the secrecy and integrity of the voting process in MSB and insurance conversions and require additional disclosures to members about the costs and effects of charter conversion. Use the resource link below to see the 74-page final rule document.
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