Nonprofit Advocacy Matters | May 5, 2014

A “Pre-cap” of the Congressional Agenda It’s an even-numbered, election-shortened year for Congress. Typically that means anything that can be done in the non-spending area must occur in May (before Memorial Day) and in the appropriations arena before the month-long August recess. Officeholders of all stripes have already begun calculating the competing urges of doing no harm to themselves and their party versus hurting/embarrassing the other side. Conventional wisdom holds that those urges are more intellectual than visceral prior to August, and then controlling thereafter until Election Day. With those thoughts in mind, here is a summary of what’s scheduled: Spending: For the first time in years, House and Senate appropriators are officially and actually following “regular order,” that is, each of the 12 spending bills that funds federal programs is being proposed and debated in committee and is being scheduled for floor consideration prior to the end of the fiscal year on September 30. The House may pass several of the bills prior to Memorial Day; the Senate usually moves slower, but appears committed to passing as many individual measures as possible. The Labor-Education-HHS bill, which funds the largest number of programs performed in communities through the work of charitable nonprofits, tends to be the most controversial and gets put off until the last. Taxes: Comprehensive tax reform is all but officially off the table for this year and the Senate and House are taking different approaches to restoring some or all of a package of expired tax provisions. Among those are the enhanced deductions for donations of food inventories and land conservation easements, and the IRA charitable rollover. The Senate is scheduled to take up a bill to restore for 2014 and extend through 2015 the package of about four dozen tax provisions. The House, instead, is planning to go through the package on a piecemeal basis, starting with six that are very popular with the business community. No plan has yet emerged to get the two chambers on the same page, suggesting that an end-of-year bill is likely. Social Issues: It remains too soon to say whether several stalled issues will break free of gridlock in the coming weeks, but as time passes, their chances diminish. A Republican-led filibuster blocked action last week on a proposal to raise the federal minimum wage to $10.10 per hour. The Republican majority in the House continues to insist on inclusion of one or more of its priorities, such as reforms to job-training programs, before taking up aSenate-passed bill to restore extended unemployment benefits. Neither chamber has been successful in reaching consensus on immigration reform which may or may not include a form of amnesty or pathway to legal status for individuals who entered the United States illegally. Opposition to IRS Proposed Form 1023-EZ and Express-Lane Approvals The IRS recently proposed a new Form 1023-EZ that would create an express-lane approval process for 501(c)(3) status. Opposition to the proposed two-page form and fast-track process has focused on how it would significantly reduce the amount of due diligence done by the IRS. One executive director forecasts chaos for fundraising and foundations "if the field is suddenly flooded with hundreds of thousands, if not millions, of newly minted c3’s.”  The National Council of Nonprofits filed Comments in opposition as well. In summary, “We agree with the IRS that the long-established Form 1023 and application process need review and streamlining. However, we are concerned that the proposed new EZ Form and related express-lane approval process go too far and too fast, representing radical departures from proven protocols.” The National Association of State Charity Officials (NASCO) also filed Comments in opposition to the IRS proposal, noting that “State charity officials uniformly oppose a Form 1023-EZ,” and predicting “that the Form 1023-EZ will increase opportunity for fraud and heighten the burden on state regulators.” Challenges Remain for State Revenues, Spending Priorities The data for 2014 are mixed on how states are faring with tax revenues and on which programs they are restoring funding that they previously slashed at the depths of the recession. State revenues have experienced growth for 16 straight quarters through the third quarter of 2013, according to the Census Bureau. Governors in 42 states proposed higher spending levels for 2014 than the prior year, the National Association of State Budget Officers (NASBO) reports. Yet an analysis by The Pew Charitable Trusts found that, after adjusting for inflation, only 20 states were back to their peak levels by the second quarter of 2013. The NASBO survey shows that that the vast majority of states are increasing spending on elementary and secondary education, as well as on transportation and infrastructure. Other spending is going to “any kind of program that can be tied to economic development and job creation,” according to a NASBO official. For Florida, that means spending on tourism, while Nebraska is cutting taxes by $412 million. California, on the other hand, is considering devoting additional resources to the state’s rainy day fund. Noticeably absent from the reports is restored funding for human services and other programs that are typically provided through contracts and grants with nonprofit organizations. For a more detailed analysis, read “Lawmakers Jockey Over Budget Surpluses,” published in Stateline. Taxes, Fees, PILOTs PILOTs: Princeton University agreed to make nearly $22 million in payments in lieu of taxes to Princeton, New Jersey over a seven-year period. The new payments come on top of roughly $3 million in property tax payments the university pays on tax-exempt properties and upcoming contributions to local fire stations. In announcing the new PILOT agreement, the university president stated that the purpose was “to reaffirm both our desire to help sustain the vitality and well-being of our home community and our deep appreciation for the many aspirations and interests we share.” PILOTs: The Hartford Courant has come out in strong opposition to legislation sponsored by the Connecticut House Speaker (and opposed by the Governor) that would impose property taxes on nonprofit hospitals and universities. Calling the proposal unfair and premature, aCourant editorial observed: “just because a college or hospital isn't paying property taxes doesn't mean it isn't contributing to the community. The University of Hartford, for example, offers scholarships to Hartford residents, has made land available for two magnet schools, helps incubate small businesses in the Upper Albany neighborhood and beautifully renovated an empty car dealership into an arts building, among other things.” The editors ask: “If the school was pressed for property tax revenue and had to abandon programs such as these, would Hartford be better off? Is it worth the chance?” The Connecticut House passed a scaled-down version of the Speaker's bill over the weekend; Senate passage is uncertain. Vermont Calls for Constitutional Convention onCitizens United On May 1, Vermont became the first state to call for a convention to amend the U.S. Constitution to reverse the U.S. Supreme Court’s Citizens United decision, which disallowed many restrictions on money in politics. The Legislature formally resolved: “That the General Assembly, pursuant to Article V of the U.S. Constitution, hereby petitions the U.S. Congress to call a convention for the sole purpose of proposing amendments to the Constitution of the United States of America that would limit the corrupting influence of money in our electoral process, including, inter alia, by overturning the Citizens United decision, ….” Congress must convene a constitutional convention if thirty-three other states call for one. Government-Nonprofit Contracting News New Jersey Sees Contracting Reform Progress, Continues Streamlining Efforts The recent progress report from New Jersey’s Red Tape Review Commission includes two items of particular interest to nonprofits. The Department of Children and Families has implemented an electronic system for bidding on contracts that reduces time and duplicative paper submissions. Additionally, the State Board of Social Work Examiners has revised its licensing requirements for greater flexibility, and the Board will now defer to accreditation standards set by national social work organizations, rather than utilizing its own. In recognition of the progress the Review Commission is making in streamlining government contracting and other problem areas, this past week Governor Christie issued an Executive Order extending its operations through 2015. The Order expressly recognizes the contributions and public input of nonprofits in helping the Review Commission analyze the impact of the regulatory environment on job creation, economic growth, and investment in New Jersey. The Review Commission was established in 2010 to address the concerns of for-profit businesses, but quickly added nonprofits as a result of the successful advocacy efforts spearheaded by the Center for Non-Profits, the state association of nonprofits in New Jersey. Arizona Revises Nonprofit Audit Requirements Arizona legislatively revised audit requirements for nonprofits with state contracts, increasing the audit threshold as well as adjusting the frequency with which audits conducted by a certified public accountant are necessary. Under the new law, nonprofits with more than $250,000 annually in state contracts must undergo an audit each year. Less stringent financial reporting requirements will apply to nonprofits with $250,000 or less in state contracts for the year. Under previous law, nonprofits were required to secure an audit every other year if they receive between $50,000 and $100,000 in contracts and annually if they receive more than $100,000. Nonprofit Conservancy Helps Preserve National Park The Yosemite Conservancy, a nonprofit based in San Francisco, has agreed to pay the lion’s share of a $36 million project to help preserve the giant Sequoias in Yosemite National Park. Past mistakes and declining federal spending on parks reportedly have caused experts to fear that the 2000-year-old trees in the Mariposa Grove at Yosemite may suffer decline. The new project will remove a road and parking lot, build an elevated walkway, and make other improvements to make the trees more resilient. In recent years, nonprofits and private funders have stepped in to underwrite operations or maintain public access to parks in Arizona, California, North Carolina, Wyoming, and elsewhere. Judge Blocks Clothing Bin Ban A federal judge granted Planet Aid a temporary restraining orderagainst enforcement of an Ypsilanti, Michigan ban on unattended clothing and shoe collection bins on commercial property. Asserting that the solicitation of clothing and other donations is a form of free speech, the nonprofit argued that the city’s prohibition infringed its First and Fourteenth Amendment rights. The clothing bin ban reportedly was spurred by complaints about dumping near the bins and criticism about the organization's sale of the donated goods overseas. A bill pending in the Michigan Senate would take away from local governments the power to impose bans on clothing bins set up on private property. Round One Goes to Maine Nonprofits, Round Two … Nonprofits in Maine won a stunning legislative victory when they successfully lobbied for a bill to partially remove a cap on charitable giving. While some would be tempted to declare victory and go home, the Maine Association of Nonprofits (MANP) is rallying the advocates for the next phase. First, the background. In 2013, at the very end of the legislative session, the Legislature, with the Governor’s concurrence, imposed a $27,500 cap on all itemized deductions, including for charitable donations. In April 2014, the Maine House and Senate undid some of the damage by increasing by $18,000 the amount of charitable donations that are deductible in tax year 2016, and removing charitable giving from the cap altogether in 2017 and beyond. The Governor didn’t sign the bill nor veto it; he let it go into law without taking any action.  Now comes the nonprofit advocacy leadership lesson. In announcing the news about the legislative win, Brenda Peluso of MANP first gave credit where it was due: to the nonprofit leaders who spoke up for the work they perform and the people they serve. Brenda wrote: “If it were not for the calls, emails, and public testimony this community generated, we would not have been as successful as we were.” And second? Brenda reminded her coalition colleagues that “our work is not done.” Removing charitable deductions from the cap has always been the goal, so she laid out an aggressive advocacy strategy to maintain momentum toward that aim. She encouraged Maine nonprofits to join MANP in engaging candidates throughout the campaign season, encouraging other nonprofits to talk to the candidates, and identifying sponsors and champions for new legislation next year. MANP has a special webpage to learn more. Brenda didn’t say it, but we will: if at first you succeed in nonprofit advocacy, try, try for more. © Copyright 2014 National Council of Nonprofits. All rights reserved  1200 New York Avenue, NW | Suite 700 | Washington, DC 20005 | www.councilofnonprofits.org

SPONSORSHIPS & CEUs now Available: Care Management Summit: Achieving Excellence 2014

Care Management Summit 2014: Achieving Excellence!

Binghamton University Downtown Center       May 22-23, 2014

*** NYS NASW CEU Approved ***   Scholarships Now Available

Wondering why we want care professionals to talk with over 30+ speakers at the Care Management Summit?

Answer:  We think you are tremendously important in providing comprehensive consumer care to individuals and their families.  And it is important to hear from professionals who assist in care tell us their perspective ....whether coordinating, referring, researching or setting policy about care issues.    

What are your professional priorities, business and practice concerns?  We’d like to hear what you have to say and we would like to share what we are hearing or experiencing in the field.  

Offering many topics will help to engage all of us in conversations and our ideas about best practices in care. Thank you to National and NYS NAPGCM for supporting our work as we "take note and celebrate care professionals' voices".  This Summit is about networking, collaborations and future funding possibilities together.

Join us at Binghamton University for World Cafe', Violence Prevention & self-care, Motivational Interviewing with the Mayo Clinic, SBIRT training, care partnership in practice, innovations in disability services and dementia care, hoarding interventions, research and health care studies, vulnerable care panels, enabling designs where we live our lives at home, ethics and advance directives, elders with chronic care needs leaving prison, veterans and special needs, dementia music and movement and sensory innovations as well as.... conversations with home care physicians who want to share and learn about other provider care practices and use.....    

Registration:  http://www2.binghamton.edu/ccpa/care-management-summit/

Thank you to NASW-NYS as we are now NASW CEUs approved for 9.0 CEUs for the Summit! 

Online registration extended and being honored at this time for your convenience; limited seating so please register soon.  

Scholarships: Contact Kim Evanoski at evanoski@binghamton.edu or 607-280-1433

 ....we want you to come, we will try hard to make that happen!  Call or email Kim!

Pay-What-You-Can Ad and Exhibit Opportunity – see attached letter & form

Online Registration: http://www2.binghamton.edu/ccpa/care-management-summit/

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Meet our Speakers and Sponsors:  http://caremanageforall.com/

Sponsors & Ads:  http://www2.binghamton.edu/ccpa/care-management-summit/vendor-form.html

Questions? Kim Evanoski, MPA LMSW CDP  - Program Coordinator

                        Care Management Summit  - CCPA Dean's Office

                        Adjunct Professor/Field Liaison - NYU Zelda Foster PELC Fellow

                        Affiliate Member - Palliative Care Research Cooperative (PCRC)

                         Mobile: 607-280-1433                  Email: evanoski@binghamton.edu

Drafting the Ideal Team: Risk Lessons from the NFL - RISK eNews

April 30, 2014 Drafting the Ideal Team: Risk Lessons from the NFL By Arley Turner Next week is my favorite event of the pro football offseason, the NFL Draft. During the draft, the General Manager of each franchise generally leads the selection of the team’s “draft picks.” Each prospective team member is carefully screened before the GM decides which players will be targeted as new players for the coming season. Every draft pick has the potential to be a star player, a solid contributor, or in some cases, a poor fit. So how do the NFL’s most successful teams choose their draft picks, and what can nonprofit leaders learn from the process? Study the Tapes, But Save Time for Candid Conversations In the NFL, studying tapes of a player’s past performance is the beginning, but never the end of the screening process. In the new film Draft Day, the fictional GM of the Cleveland Browns has an opportunity to choose a Heisman Trophy-winning quarterback. But rather than basing his decision solely on the tapes and trophy, the GM calls other scouts and the quarterback’s college coach to learn more. The time spent talking to people who know a prospective employee is incredibly valuable. Keep in mind that a prospective employee is motivated to tell you what they think you want to hear. References are an opportunity to hear about the prospect’s skills, talents and weaknesses from another source. Don’t be cynical about reference checks! Always allot sufficient time in your screening process to talk to people who truly know your top candidates. Consider Culture and Rhythm Throughout the screening process it’s essential to remember that every new hire needs to fit your culture, and also the rhythm of your nonprofit. In Draft Day, the GM constantly asks prospects what’s most important to them. While some players understandably reply, “winning,” the GM’s clear preference is for players who put family and loyalty over winning ball games. As you design your screening process for key positions, make certain you are screening for culture and rhythm mismatches. Recognize the human tendency to look for information that confirms your initial impressions about a candidate (the confirmation bias), rather than tuning in to information that suggests a mismatch. Get Your Draft Picks on the Field without Delay When asked in 2013 whether he hoped to find immediate starters in the crop of draft picks, Denver Broncos GM John Elway replied, “That's always the goal, to find these guys and get them on the field as fast as we can.” (Source: The Denver Post.) Venture capitalist and author Ben Horowitz echoes this idea in his book, “The Hard Thing About Hard Things.” Horowitz urges leaders to “aggressively integrate” new executives after hire. His tips include: providing monthly, weekly and even daily objectives to help the new hire produce “immediately,” insisting that new leaders get up to speed fast, and providing opportunities for interaction with peers by providing a “list of people they need to know and learn from.” Horowitz is a proponent of a 30-day window for new executives, writing that “If in thirty days you don’t feel that they are coming up to speed, definitely fire them.” Screening and selecting new hires for your mission-focused organization may not seem as glamorous as making draft picks in the NFL. But the consequences are just as vital to the people and communities you serve. By exercising care as you “draft” new team players, you have the best opportunity to fortify your mission for the long term, and add dedicated teammates to your cause. Arley Turner is Project Manager at the Nonprofit Risk Management Center. She welcomes your comments and questions about risk topics, the Center’s Affiliate Member program, the 2014 NFL Draft or the Denver Broncos. Arley can be reached at (202) 785-3891 orArley@nonprofitrisk.org. Affordable, Convenient Risk Management Training Each month the Center records a brand-new Risk Webinar featuring up-to-date content on issues that are top-of-mind for nonprofit leaders. The one-time cost for each program is $59, or apply to become an Affiliate Member to enjoy unlimited access to our “vault” of more than 100 hours of risk management training. Frustrated with the limitations of your annual performance review process? Learn what’s new in the field of performance management by purchasing this month’s program on Managing Risk in Performance Management. Next month’s program, on The Insurance Marketplace will be released on Monday, May 5. To purchase any recorded program or peruse the “webinar vault,” visit our 2014 Webinars page today. New Sessions Added to Upcoming Risk Conferences The conference programs for the Center’s 3 risk-themed conferences are taking shape! We invite you to browse the schedules, workshop descriptions and registration details for each event, by visiting the conference webpage. To suggest a topic for the Risk Summit in Chicago, click here.	Risk Webinars Fit-to Suit Risk Policies My Risk Management Policies, Version 2.0 helps you create custom risk policies for your organization in a matter of minutes. Need well-written policies? This cloud app makes policy drafting easy. After completing the quick registration process, search by keywords, categories or peruse an alphabetized list of 150 templates. Each template offers many options to consider. Some of the templates force you to make practical choices. For example, you might prefer an informal style over formal language. Or perhaps you want to strictly prohibit something that other nonprofits allow! With My Risk Management Policies, Version 2.0, custom-fitting policy language to suit your nonprofit is easy and dare we say… fun! Version 2.0, What’s New? We’re excited to announce some terrific new features, plus a bold new design. Many of the new features were developed with client feedback in mind. You spoke and we listened! Multiple users, one account— The new version has two levels of users: Account Holder and Added User. This means that two or more staff from one organization can collaborate on the drafting of policies. Want to get your outside counsel involved? No problem! The Account Holder for your nonprofit may grant system access to expert advisors through the “added user” feature. Policy drafting tips — We’ve added policy drafting tips at the top of many templates. This is our chance to offer a few hints from our years of experience drafting and editing risk policies for nonprofits! More policies than ever before — We have added nearly 50 new policy templates and updated many of the templates in the first version, and we’re not stopping there! As always, we welcome your suggestions for new policy types, new policy language, policy options and more. Send your requests toinfo@nonprofitrisk.org. To begin developing customized Risk Management Policies for your nonprofit,click here. The one-time licensing fee for My Risk Management Policies is only $179 or just $29 if your nonprofit is an Affiliate Member of the Nonprofit Risk Management Center.
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© 2014 Nonprofit Risk Management Center

Navigating a Nonprofit Corporation through Bankruptcy

Introduction

The nonprofit sector is an enormous contributor to the American economy, providing 5.5 percent of the nation’s GDP and employing 13.7 million people. Just like for-profit corporations, nonprofits can be susceptible to financial problems and insolvency, and may ultimately seek protection under the Bankruptcy Code (although, unlike for-profit corporations, nonprofits cannot be forced into bankruptcy involuntarily). While there is ample guidance for nonprofit directors regarding their fiduciary duties generally, very little has been written about the duties of directors of insolvent nonprofit corporations.

Overview

It is well settled that the duties of officers and directors emanate from state law.[1] Directors are stewards charged with balancing risk and furthering the purpose of the enterprise. The purpose of a for-profit corporation is to enhance the value of the enterprise for the benefit of residual interest-holders, ordinarily the owners of the enterprise. The purpose of a nonprofit corporation is to further the stated mission of the enterprise, rather than to generate wealth for stakeholders.

Some nonprofits have members (nonprofit membership organizations) and some do not (non-member not-for-profit organizations). While in some respects the members of a nonprofit membership organization are like shareholders of a for-profit corporation, in that they elect a board of directors, membership interests in a nonprofit, unlike shares in a for-profit corporation, represent a controlling rather than an economic stake in the enterprise. They cannot be transferred for value like shares of for-profit corporations, and often do not even entitle members to a share of the residual value of the enterprise upon dissolution.[2]

The members of a nonprofit membership organization periodically elect a board of directors, which is ultimately responsible for the operation of the enterprise and the fulfillment of its mission. The boards of non-member not-for-profit corporations are self-selecting and self-perpetuating. The mission of a nonprofit membership organization may either be to advance a charitable or public purpose—as in the case of a nonprofit hospital system, a nonprofit theater, National Public Radio (NPR) or Public Broadcasting Services (PBS)—or to benefit the members of the nonprofit—as in the case of a rural electrical cooperative, a local food cooperative, a university club, a country club, or a professional sports association, such as the National Football League (NFL), Major League Baseball (MLB), and the Professional Golfers’ Association (PGA). The mission of a non-member not-for-profit will be to advance a particular charitable or public purpose.

When a for-profit corporation becomes insolvent, the directors continue to be obligated to preserve (and, if possible, enhance) the value of the enterprise, although the beneficiaries of this obligation shift from the owners to the creditors of the company. Similarly, when a nonprofit corporation becomes insolvent, the directors remain obligated to fulfill their fiduciary obligations as delineated under state law (i.e., to advance the stated mission of the enterprise). While in either case, state law, rather than federal bankruptcy law, will continue to govern a director’s fiduciary duties in a bankruptcy proceeding, a bankruptcy filing will require a board to navigate an entirely new statutory framework while discharging its fiduciary obligations.[3]

In some respects, a bankruptcy filing will shift the landscape to provide greater power to creditors. For example, in a bankruptcy case a debtor will be required to provide a greater level of transparency regarding its financial condition and operations than is ordinarily required. Soon after the filing of a chapter 11 case, a representative of the Office of the United States Trustee (a branch of the Department of Justice) will solicit indications of interest from unsecured creditors in forming an official committee. If a sufficient level of interest is shown, a committee will be formed, which may retain legal and financial professionals at the debtor’s expense and will act as the creditors’ watchdog in the chapter 11 process. During bankruptcy, a debtor will be required to seek court approval, after providing creditors with notice and the opportunity to object, before taking any action that is not in the debtor’s ordinary course of business. Bankruptcy will also provide creditors with remedies for addressing director malfeasance that are not ordinarily available, such as replacing the debtor-in-possession with a trustee or examiner, subordinating a director’s claim under section 510(c), converting the case to chapter 7 (if the debtor is not a farmer or a nonprofit), and objecting to plan confirmation on the basis of improper enrichment of directors.[4]

In other respects, a bankruptcy filing shifts the landscape to provide directors with greater power to deal with recalcitrant creditors. For example, bankruptcy can be used to force a restructuring over a group of holdouts,[5] and a debtor may even strip a creditor of its right to vote on a proposed plan as a consequence of the creditor’s conduct during the chapter 11 case by “designating” or disqualifying that creditor’s vote.[6]

Fiduciary Duties of For-Profit Corporate Boards

The goal of the board of a for-profit corporation is to maximize the value of the enterprise (without subjecting the enterprise to unreasonable risk).[7] Under state law, directors of a corporation generally owe a fiduciary duty to the corporation, including, among other things, to maximize its value. [8]

As set forth in Torch Liquidating Trust ex rel. Bridge Associates L.L.C. v. Stockstill, 561 F.3d 377 (5th Cir. 2009), when a corporation is solvent, the shareholders are the beneficiaries of the corporation’s growth and increased value and have standing to bring actions against directors on the company’s behalf asserting a claim for breach of the directors’ duties to the corporation.[9] When the corporation is insolvent, however, the creditors take the place of the shareholders as the holders of the residual interest in the enterprise, and thus acquire standing to bring derivative actions on behalf of the company.[10] The derivative suit is a powerful weapon for enforcing directors’ fiduciary duties under state law and challenging corporate mismanagement.

It is important to understand that a direct fiduciary duty to creditors does not spring into being upon the insolvency of the enterprise. Rather, creditors simply replace shareholders as the class entitled to commence a derivative action to assert a breach of a director’s state law fiduciary obligations when the enterprise becomes insolvent.[11] While bankruptcy cases often speak of a duty to creditors, that duty is better articulated, as in the Torch Liquidating case, as a continuation of the pre-petition duty of a board of directors to the enterprise, which derivatively redounds to the benefit of creditors when the enterprise becomes insolvent.

Fiduciary Duties of Nonprofit Corporate Boards

Directors of nonprofit corporations have fiduciary duties that to a large extent parallel the duties of for-profit directors.[12] However, unlike the duties of a board of a for-profit corporation, the duties of a board of a nonprofit are not to maximize the value of the enterprise. The obligations of a board of a nonprofit corporation are to the corporation and its stated purpose and mission.[13] While nonprofit corporations do not have shareholders, there are still constituencies who have standing to bring derivative suits, including members (in the case of a nonprofit membership corporation) and directors of the nonprofit.[14] One commentator has even suggested the possibility of beneficiary derivative actions.[15] At the same time, however, federal law and the nonprofit laws of some states provide qualified immunity for uncompensated officers and directors of certain nonprofit organizations.[16]

As with the duties of a board of a for-profit corporation, the duties of a board of a nonprofit do not change when the enterprise becomes insolvent. The board of an insolvent nonprofit need not act like the board of a for-profit corporation and seek to maximize the value of the enterprise in contravention of the entity’s corporate mission. A board of an insolvent nonprofit must remain true to its mission as set forth in its organizational documents. In fact, in forgoing the corporate mission to pursue a path of value maximization, a nonprofit board could expose itself to liability for violating the nonprofit’s organizational documents.[17]

Creditors of an insolvent nonprofit corporation have different rights than creditors of an insolvent for-profit corporation and should not expect nonprofit boards to act like for-profit boards in bankruptcy. For example, unlike creditors of a for-profit corporation, creditors of a nonprofit cannot put the nonprofit into bankruptcy by filing an involuntary bankruptcy petition against it[18] and may not compel a nonprofit debtor to convert its case from chapter 11 to chapter 7 liquidation.[19] Further, while creditors of for-profits in bankruptcy can expect to receive the residual value of an insolvent for-profit corporation unless the debtor is sold or a plan is approved providing for a recapitalization, courts have generally held that creditors of nonprofits are not entitled to the residual value of the enterprise in bankruptcy.[20] This means that unlike in a bankruptcy of a for-profit corporation, managers and directors of a reorganized nonprofit may often retain control of the nonprofit over the objection of an impaired class of creditors.

Creditors that contract with a nonprofit corporation know that they are dealing with an entity that has a mission other than the maximization of the value of the enterprise, and engage with the company with full knowledge that the corporation will be operated on that basis. While such creditors may reasonably expect that a nonprofit board will not intentionally waste corporate assets under any circumstances, there is no basis to expect that a nonprofit board will abrogate its stated mission in order to maximize enterprise value once the company becomes insolvent. While many bankruptcy cases discuss the fiduciary duty of an estate representative to maximize the value of the enterprise for the benefit of creditors, upon closer inspection these cases generally involve for-profit entities whose boards are obligated to maximize value under state law.[21] There is no provision of the Bankruptcy Code that specifically obligates a trustee or debtor-in-possession to maximize the value of the enterprise for the benefit of creditors.[22]

It is instructive that in the context of asset sales (where one might reasonably argue that even a nonprofit debtor should be obligated to maximize value), the Bankruptcy Code places clear restrictions on a nonprofit debtor, which frequently prevent the debtor from maximizing value: (i) a transfer of assets of a nonprofit debtor must comply with whatever applicable non-bankruptcy law governs transfers of property by that nonprofit (i.e., state law, including laws relevant to nonprofits);[23] (ii) a nonprofit debtor may transfer assets to a for-profit corporation only under the same conditions that would apply if the debtor had not filed a bankruptcy case;[24] and (iii) all transfers of a nonprofit debtor’s property under a proposed plan must be made in accordance with applicable non-bankruptcy law that governs transfers of property by a nonprofit entity.[25] The legislative history of these three subsections evidences Congress’s intent to keep in place state law restrictions on nonprofits and “restrict the authority of a trustee to use, sell, or lease property by a nonprofit corporation or a trust.”[26]

Conclusion

State law frames and controls the duties and responsibilities of corporate directors, and often provides qualified immunities for directors of nonprofit corporations. No provision of the Bankruptcy Code preempts any state law concerning the duties and responsibilities of corporate directors, nor are we aware of any state law that modifies a director’s duty when a corporation becomes insolvent. Bankruptcy merely imposes a new overlay of tools to be used and obstacles to be navigated by a board while complying with its fiduciary duties and shepherding an enterprise through the restructuring process.

Announcing The 2014 Field Guide to Software for Nonprofits

	2014 Field Guide to Software for Nonprofits How do you know what technology will help increase the reach of your nonprofit? How do you wade through the different options available on the marketplace to find the right one for your needs? We'd like to tell you about the Field Guide to Software for Nonprofits, our flagship product, which we've newly updated for 2014. This handy reference book to the different types of software available to help your organization will become your go-to guide, whether you're a technologist or tech-averse.  The Idealware mission is to help nonprofits like yours make smart technology decisions, and the Field Guide is the perfect summary of that mission. Each year we update it to reflect the thousands of hours of research, interviews, and analysis we conduct around nonprofit technology, as well as trends and needs in the nonprofit sector. Inside the 220-page book, you'll find information on every type of software to benefit your nonprofit. In each section you'll get an overview of the different tools available to you, what you can use them for, the options widely used by other nonprofits, and guidance on where to seek out more information. For the 2014 edition, we've added completely new research and recommendations, up-to-the minute listings of software rates and features, and insight into software and technology on the cutting edge. We're extremely proud of the Field Guide. Since our inaugural edition five years ago, we've made it a priority each year to provide a comprehensive overview of nonprofit technology at a cost that fits the budgets of even the smallest organizations. You can purchase the 2014 Field Guide to Software for Nonprofits for $19.95 by registering below. Or, if you want to purchase multiple copies or are ordering from outside the U.S., click here to buy through Amazon. If you would like your coworkers, network, or grantees to benefit from our research too, remember that we also offer attractive rates for bulk purchases. Contact Laura Quinn atlaura@idealware.org for more information. Purchase The Field Guide Now >>> ________________ You received this email because you signed up for Idealware updates. If you are no longer interested in hearing from us,click here to unsubscribe. Idealware | 1 Pleasant St., Suite 4E | Portland ME | 04101