With the recent amendment of AS 45.55.139, effective immediately, only Alaska Native Corporations which had “500 or more original shareholders when the corporation was originally organized” have to file their annual reports and proxy materials with the state Division of Banking and Securities. Because the filing requirement is the trigger for subjecting Native Corporation board elections and shareholder votes to regulation by Division of Banking and Securities, the amendment dramatically reduces the number of corporations that have to comply with state proxy regulations, which are administered by Division of Banking and Securities. This is because, while dozens of Native Corporations now have more than 500 shareholders, apart from all of the Regional Corporations, only a handful of Village and Urban Corporations had 500 or more original shareholders.
Under the prior version of AS 45.55.139, every Native Corporation with more than One Million Dollars ($1,000,000.00) in assets and 500 or more shareholders was required to file annual reports and proxy material with the Division of Banking and Securities and comply with state proxy regulations. Since the vast majority of Village Corporations had fewer than 500 original shareholders, most Village Corporations which are now subject to Division of Banking and Securities jurisdiction only came under the regulations because of shares being transferred by inheritance or gift, or new classes of shares being issued to descendants or missed enrollees. These corporations – which started with fewer than 500 shareholders and then crossed the threshold to having 500 or more – were forced to adopt proxy and election policies and procedures geared to ensuring compliance with the statutory filing requirements and the Division of Banking and Securities proxy regulations.
In short:
- All 12 Regional Corporations (each having more than 500 original shareholders) are wholly unaffected by this change in law.
- Any Village or Urban Corporation which had 500 or more original shareholders is wholly unaffected by this change in law.
- Native Corporations with fewer than 500 shareholders now no longer have to worry about coming under Division of Banking and Securities jurisdiction because of an increase in their number of shareholders.
- Native Corporations which had fewer than 500 original shareholders but now have 500 or more current shareholders no longer have to file their annual reports and proxy materials with Division of Banking and Securities or conduct their proxy solicitations in accordance with Division of Banking and Securities proxy regulations.
It is corporations in the last category (and their shareholders) that are most impacted by the recent statutory amendment.1 These corporations have been forced to adopt nominating procedures (such as requiring board candidates to file questionnaires making extensive biographical disclosures), and distribute (and file) lengthy proxy statements (publicly disclosing extensive corporate financial and governance information), and adopt largely non-discretionary proxy formats, all as mandated by Division of Banking and Securities proxy regulations. With these regulations rendered to longer applicable, these corporations (again) now have much greater discretion in how proxies will be solicited for board elections and shareholder votes and what information will be communicated to shareholders in connection with shareholder meetings.
The process of transitioning out of Division of Banking and Securities regulatory jurisdiction will require careful review and revision of key governance policies and focused communication with shareholders. For example, corporations that relied on the regulations to dictate permissible proxy formats or limit the extent of discretionary voting – for both board and non-board solicitations – will now have to “back-fill” these requirements with board-adopted corporate policies. Corporations previously subject to the proxy regulations should be cautious, and get legal advice, in revising shareholder meeting practices to take full advantage of the greater flexibility now available while simultaneously protecting the corporation’s interest in conducting fair elections.
The elimination of an administrative remedy, along with regulatory standards, for making false or misleading proxy representations increases the likelihood of more proxy disputes winding up in court, to be decided under the common law governing proxy solicitations. It will not always be clear when a disclosure no longer required by regulation would still be required by common law.2 Although the statutory amendment eliminates a significant compliance burden on many corporations, at the same time it also eliminates a safe-harbor from liability for failing to make proper disclosures in connection with proxy solicitations.3
Finally, there may be situations in which the application of this legislation is unclear. After all, every corporation has no shareholders “when the corporation [is] originally organized[,]” as shares are only issued after organization, by necessity. Several Village Corporations are the result of mergers or consolidations, where determining “when the corporation was originally organized” could be unclear. Some corporations had “original” shareholders added to them long after “when the corporation was originally organized” due to delays and complications in finalizing the roll under the Alaska Native Claims Settlement Act (ANCSA). Corporations facing these issues should get legal advice on whether the new legislation applies to them.
1 The Division of Banking and Securities has identified at least seven corporations in this category: https://www.akleg.gov/basis/get_documents.asp?session=34&docid=15976.
2 See Brown v. Ward, 593 P.2d 247, 249 (Alaska 1979).
3 See Henrichs et al. vs. Chugach Alaska Corporation 260 P.3d 1036 (Alaska 2011) (holding that Alaska Native Corporation proxy statement that complied with proxy solicitation regulations did not contain material misrepresentations).
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