Gagliardi, Mark P.

Wall, Betsy

English

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2001 Survey of Rhode Law: Legislation: Financial Institutions: An Act Relating to Financial Institutions; An Act Relating to Mutual Holding Companies

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Roger Williams University Law ReviewVolume 7 | Issue 2 Article 28Spring 20022001 Survey of Rhode Law: Legislation: FinancialInstitutions: An Act Relating to FinancialInstitutions; An Act Relating to Mutual HoldingCompaniesMark P. GagliardiRoger Williams University School of LawBetsy WallRoger Williams University School of LawFollow this and additional works at: http://docs.rwu.edu/rwu_LRThis Survey of Rhode Island Law is brought to you for free and open access by the Journals at DOCS@RWU. It has been accepted for inclusion inRoger Williams University Law Review by an authorized administrator of DOCS@RWU. For more information, please contact mwu@rwu.edu.Recommended CitationGagliardi, Mark P. and Wall, Betsy (2002) "2001 Survey of Rhode Law: Legislation: Financial Institutions: An Act Relating toFinancial Institutions; An Act Relating to Mutual Holding Companies," Roger Williams University Law Review: Vol. 7: Iss. 2, Article 28.Available at: http://docs.rwu.edu/rwu_LR/vol7/iss2/28SURVEY SECTIONFinancial Institutions. An Act Relating to Financial Institu-tions. Provided that certain requirements are met, each creditunion that is converted into a financial institution chartered underthe laws of Rhode Island has all of the power and privileges con-ferred on, and is subject to all the duties and liabilities imposed onfinancial institutions. Similarly, each credit union that is con-verted into a financial services entity chartered under the laws ofthe United States has all of the power and privileges conferred on,and is subject to all the duties and liabilities imposed on federallychartered services entity. Effective July 13, 2001. 2001 R.I. Pub.Laws ch. 233.SUMMARYThe Credit Union Conversion Act of 2001 was enacted to setforth the procedures and requirements for the conversion from acredit union to a financial institution or other financial servicesentity. There are several requirements that must be met before acredit union can convert into a financial institution or other finan-cial services entity. First, the credit union must comply with ei-ther the requirements of Chapter 2 of Title 19, if the conversion isto a financial institution, or the applicable federal laws and regula-tions, if the conversion is to a financial services entity.' Second,the plan of conversion must be adopted by a two-thirds vote of theboard of directors and be approved by both the director or the di-rector's designee and a majority vote of those members of the creditunion qualified to vote pursuant to section 19-5-7.2 Members mayvote either in person or by proxy at a meeting called by the board ofdirectors. 3 A credit union member who is qualified to vote is de-fined as an individual whose tax identification number or socialsecurity number is used by the credit union for interest reportingpurposes to the Internal Revenue Service.4 Third, once the plan ofconversion has been approved, the director or the director's desig-nee must issue a certificate of approval of the conversion to theconverted entity and file it with the secretary of state along with1. The Credit Union Conversion Act of 2001, R.I. Gen. Laws § 19-5.1-3(2001).2. Id. § 19-5.1-3 (b).3. Id.4. Id.20021 589590 ROGER WILLIAMS UNIVERSITY LAW REVIEW [Vol. 7:403the payment of fifty dollars.5 Additionally, a certificate of the gen-eral treasurer must also be filed stating that the converted entityhas paid into the treasury for the use of the state, a sum equal toone tenth of one percent of its capital stock, the amount of whichcannot be less than $100.6 The state must immediately record thecertificate of approval upon the filing and the payment of the fiftydollars.7 Fourth, deposits must continue to be federally insured inorder for there to be a conversion into a financial institution orother financial services entity.8A conversion does not require the prior liquidation of thecredit union. 9 Furthermore, the corporate existence of the creditunion does not terminate pursuant to a conversion into a financialinstitution or other financial services entity, rather there is a con-tinuance of the corporate existence. 10 However, if the plan of con-version calls for the issuance of capital stock, there are severalrequirements that must be met. First, the converted entity mustissue and sell the stock issued in connection with the conversion atits pro forma market value which must be made by an independentappraisal." Second, the stock must be offered initially in a sub-scription offering to the members of the credit union on an eligibil-ity record date established by the board of directors, giving thosemembers priority rights to purchase the shares over the generalpublic pro rata based on deposits. 12 Third, the converted creditunion must create a liquidation account for the benefit of its mem-bers on the eligibility record date.13 This liquidation account mustrepresent the total equity of the credit union at the time calculatedin accordance with the regulations promulgated by the director orthe director's designee. 14 This liquidation account, unless other-wise impaired, is considered as part of the paid-in and unimpairedcapital stock and surplus of the newly chartered stock financial in-stitution or financial services entity.' 55. Id. § 19-5.1-3 ().6. Id.7. Id.8. Id. § 19-5.1-3 (e).9. Id. § 19-5.1-3 (a).10. Id. § 19-5.1-3 (e).11. Id. § 19-5.1-3 (c).12. Id.13. Id.14. Id.15. Id.SURVEY SECTIONA credit union conversion may be accomplished pursuant to amerger, by forming a holding company or by utilizing an existingholding company for the purpose of holding the shares of the finan-cial institution or other financial services entity.16 The newlyformed holding company may offer all of its stock to its depositorsand general public, subject to subscription rights in favor of deposi-tors, in lieu of the capital stock of the financial institution or otherfinancial services entity.17Mark P. Gagliardi16. Id. § 19-5.1-3 (d).17. Id.20021592 ROGER WILLIAMS UNIVERSITY LAW REVIEW [Vol. 7:403Financial Institutions. An Act Relating to Mutual Holding Com-panies. Provides that a mutual savings bank may reorganize intoa mutual holding company pursuant to this section. Effective June22, 2001. 2001 R.I. Pub. Laws ch. 183.SUMMARYThis Act amends Title 19 of the General Laws entitled "Finan-cial Institutions" by adding chapter 2-14.1. The Mutual HoldingCompanies Act' sets forth the method by which a mutual savingsbank may reorganize into a mutual holding company. A mutualsavings bank may so reorganize by organizing a mutual holdingcompany and chartering one or more interim stock financial insti-tutions or corporate subsidiaries and merging with those banksand subsidiaries. 2 This may also occur in any other manner ap-proved by the director.3 The stock financial institutions (institu-tion) are not terminated under this Act, but are deemed acontinuation of the mutual savings bank. 4 However, the mutualholding company must always own a majority of the voting sharesof capital stock of the institution.5 Furthermore, the institutionsshall have all the powers and privileges granted a financialinstitution.6The reorganization plan of the mutual holding company mustbe approved by a two-thirds vote of the board of trustees and by thedirector. 7 The plan must also be approved by a majority vote of thedepositors of the mutual savings bank at a board meeting.8If shares of common stock are offered for sale by the institu-tion, depositors shall be given subscription rights, and the offeringshall be conducted in the manner provided in section 19-2-14, andin any regulations issued by the director under that section.9 TheAct further provides that a mutual holding company and any sub-sidiary may engage in any activity permitted under the Bank1. R.I. Gen. Laws §19-2-14.1 (2001).2. Id. § 19-2-14.1(a).3. Id.4. Id.5. Id.6. Id. § 19-2-14.1(c).7. Id. § 19-2-14.1(b).8. Id.9. Id. § 19-2-14.1 (d).SURVEY SECTIONHolding Company Act of 1956,10 or in any activity authorized bythe director." In addition, a mutual holding company may, withthe director's approval, (1) merge or consolidate with anotherbank, financial services or savings and loan holding company, in-cluding a mutual holding company; or (2) acquire or consolidatewith another financial institution, either in mutual or stockform.12Finally, the Act states that a mutual holding company mayconvert to stock form with a two-thirds vote of the board of trust-ees. 13 The conversion plan shall provide that minority stockhold-ers shall receive an ownership interest in the resulting stockholding company, which is equal to their percentage ownership.14The percentage ownership interest is adjusted taking into accountthe assets held by the mutual holding company, and the remainingshares sold pursuant to section 19-2-14.15 Lastly, the Act grantsthe director the power to issue rules and regulations to implementthis section. 16Besty Wall10. 12 U.S.C.A. § 1841 et seq. (2001).11. R.I. Gen. Laws § 19-2-14.1(e) (2001).12. Id.13. Id. § 19-2-14.1(f).14. Id.15. Id.16. Id. § 19-2-14(g).20021 593

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2001 Survey of Rhode Law: Legislation: Financial Institutions: An Act Relating to Financial Institutions; An Act Relating to Mutual Holding Companies

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