If a co-op board is actively preventing annual meetings or hasn’t called one in more than 13 months, shareholders with 10 percent of the shares can band together and demand that the board convene an annual meeting. If the board ignores the demand, disgruntled shareholders can call a special meeting of all shareholders for the sole purpose of electing a new board.
“If the co-op is not being handled like a business, or if the people on the board are not being honest and are not doing what’s in the best interest of the corporation, sometimes you have to take over,” Steve Wagner, a partner at the law firm Wagner Berkow & Brandt, tells Brick Underground.
In a situation like this, Wagner advises, alarmed shareholders should join together to hire an attorney to advise them on the process of calling a special meeting – and ultimately help ensure that an election, when held, is fair and free of fraud.
Shareholders need to understand and follow the written requirements and specific timetable of how and when notices should be delivered for the special meeting. For example, the meeting needs to be set for between 60 and 90 days from the date of the written demand, and if the board doesn’t call the meeting within five days of the notice, any shareholder can sign the demand and call the meeting.
Wagner regularly walks shareholders through this process, making sure they comply with the co-op’s bylaws and the Business Corporation Law, which govern co-ops in New York.
Convening a shareholders’ meeting doesn’t necessarily mean there’s going to be a shake-up of the board. Proxies are often sent out to all shareholders, Wagner notes, and there’s no rule that prevents incumbent board members from collecting proxies and using them to vote for themselves. “Proxy fraud may be significant,” he says.
If fraud is suspected, the shareholders should challenge the election results right away, demanding to see the ballots, proxies, sign-in sheets, and other documents to ensure that all signatures match. As a last resort, court action may be the only way to remove certain members of an unscrupulous, dishonest board.
“Think of the board members as people running a multimillion-dollar real-estate business,” Wagner says. “The value of your apartment is going to depend on the proper administration and running of that building.”
And proper administration of the building is going to depend on a proper election.
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