FROM: Acting Assistant General Counsel Hattie M. Ulan
SUBJ: Nonstandard Amendment, Indemnification of Officials
(Your October 21, 1988, Memorandum)
DATE: December 23, 1988
You have requested our review of [redacted] request to adopt a nonstandard bylaw amendment concerning indemnification of their board of directors, officers and committee members. We suggest that the amendment be modified to include a reference to indemnification of state-chartered credit unions. The amendment will then be in compliance with Section 701.33 of the NCUA Rules and Regulations (12 C.F.R. S701.33). We have no objection to the amendment being designated as Article XIX, Section 8 of the FCU Bylaws. We would caution the FCU that an attorney's opinion should be obtained in choosing the correct Florida law under which the FCU officials will be indemnified.
Pursuant to the recent amendment to Section 701.33 of the NCUA Rules and Regulations, an FCU can indemnify its officials consistent with state law or with the Model Business Corporation Act. The recently amended Section 701.33 [12 C.F.R. §701.33] provides, in part:
(b)(2) Indemnification shall be consistent either with the standards applicable to credit unions generally in the state in which the principal or home office of the credit union is located, or with the relevant provisions of the Model Business Corporation Act. A Federal credit union that elects to provide indemnification shall specify whether it will follow the relevant state law or the Model Business Corporation Act. Indemnification and the method of indemnification may be provided for by charter or bylaw amendment, contract or board resolution, consistent with the procedural requirements of the applicable state law or the Model Business Corporation Act, an specified. A charter or bylaw amendment must be approved by the National Credit Union Administration. (See Change 5 to NCUA's Rules and Regulations or 53 F.R. 29640, Aug 8, 1988, attached.)
In the preamble to Section 701.33 [53 F.R. 29640 (8/8/88)], the NCUA Board stated, in part:
Under the final amendment, An FCU will be free to choose one of three options: No indemnification; indemnification under the state enabling law applicable to its neighboring state-chartered credit unions; or indemnification under the Model Business Corporation Act. The only caveat is that any FCU bylaw or charter amendment relating to indemnification, like all other such amendments, must be approved by NCUA. (Emphasis added.)
The FCU has elected to indemnify its officials pursuant to Florida law. The bylaw amendment submitted, with our recommended changes overstruck and underscored, would read as follows:
"Each person who is or was a director, officer or committee person of the credit union (including the heirs, executors, administrator or estate of such person) shall be indemnified by the credit union as of right to the full extent permitted or authorized by the Florida law for indemnification applicable to state chartered credit unions against any liability, cost or expense asserted against him/her and incurred by him/her in his/her capacity as a director, officer or committee person. The credit union shall maintain insurance, at its expense, to protect itself and any such person against any such liability, cost or expense."
We have no objection to the amendment including a reference to "heirs, executors, administrators or estate." We concur with the approval of the proposed bylaw as revised above.