Procedures must be followed to remove directors

 
Updated 11/18/2010 10:34 AM

During times of adversity, such as a tough economy in which people worry about where their next assessment and mortgage payment will come from, it is human nature to look for fault. How did this happen? Whose fault is this? What action can I take to fix it, etc.?

When it comes to running an association, it is through the efforts of volunteer homeowners that things get done rightly or wrongly, or not at all. Sometimes boards of directors do a great job, and no one knows about it because members do not waste time and effort tooting their own horns, and no one ever comes to a meeting. Thus, in times of adversity, even a great board can become a scapegoat for people who are unhappy or just worried.

                                                                                                                                                                                                                       
 

Does the board need to hire a public relations firm to get due credit, or just communicate with the members of the community through a website, newsletter, board posting or any other means of communication? However, once the momentum starts, it is hard to stop a lynch-mob mentality by announcing good acts.

The flip side is, sometimes a board is so inept, so misguided in its thinking or so indifferent, that directors should be removed. From both sides of the table, in order to properly remove a board of directors, correct procedures need to be followed to the letter. It's one thing to send the budget out 29 days in advance instead of the required 30 days; it is quite another to make a mistake in a removal of directors referendum. Technical defects in any of the steps can doom the process to failure.

Whether it is a condominium or a homeowners association, the procedures are very similar and it is the one instance where the Illinois General Not for Profit Corporation Act (805 ILCS 105/101.01 et seq.) comes into play. A board either facing a removal movement or an owner who is leading one must adhere to the Not for Profit Corporation Act, the association's operating documents, the Illinois Condominium Property Act (765 ILCS 605 et. seq.) and now the Common Interest Community Association Act (CICAA) for homeowners associations.

First, one must remember, whether on the offensive or defensive side of the ball, an action to remove directors must take place at a meeting of members, and that meeting must be properly called.

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The type of association determines how a special meeting is properly called. This is the first place we see fatal defects. For condominiums, "special meetings of the members can be called by the president, board of managers or 20 percent of the unit owners" (Section 18 (b) (5) of the Act). For homeowner associations, it is the same requirement (1-40 (b) (3)). In these instances, the statutes would override contradictory declaration provisions. Since the directors in question must be removed at a meeting, this means an original petition signed by 20 percent or more of the owners must be submitted to the board of directors to call the special meeting. The flaws that frequently appear are submitting a photocopy, non-owners signing the petition, inadequate signatures, forgeries, etc. Petitions calling for special meetings must be carefully scrutinized before the calling of the meeting.

Second, there is a difference of opinion among professionals as to who may call the meeting. Some of us hold to the opinion (yours truly included) that only the board secretary can send notice of a meeting, which means once the petition is filed with the board, it is to be diligently scrutinized and if it meets all legal requirements, the secretary is obligated to send out the notice. Notices must be sent not more than 30, nor less than 10 days prior, to the convening of the meeting. (Condominiums 18 (b) (6) and HOAs 1-40 (a)). There are some attorneys who feel the petitioners can send out their own notice, but then there is no assurance that the meeting will be called or convened properly.

Third, the notice of the meeting must be sent to all members entitled to vote. Often insurgencies, due to a lack of conviction, wish to omit the named directors from receiving notice. That would be a fatal flaw.

Also, the directors to be removed must be specifically named, and the purpose of the meeting must be clearly stated in the notice. Failure to specifically name the directors proposed to be removed would invalidate the notice. Lastly, for condominiums with cumulative voting, no director may be removed "if the votes cast against his or her removal would be sufficient to elect him or her if then cumulatively voted at an election of the entire board of directors." (The afore stated is set forth in the Not for Profit Corporation Act 108.35 (c).

                                                                                                                                                                                                                       
 

Once the petition is filed, the notice is sent and the meeting convened. The next steps are procedural and there is not too much available in the way of precedent or legal authority, so the safest bet is to follow the rules governing elections, only in reverse. The new CICAA provides some guidance for HOAs in that it specifically states two-thirds of the unit owners may remove a board member at a special meeting called for that purpose (1-35 (c). This answers the question as to whether it is two-thirds of all owners, as opposed to those present at the meeting. (It is all owners.)

Condominiums associations, however, are reliant upon the wording of their bylaws, or if it is silent, then the Not for Profit Corporation Act, which requires two-thirds of those present. Since both condominiums and HOAs only need 20 percent of the owners voting in person or by proxy for a quorum, it could be a small minority of owners who can remove an entire board.

Fourth, the meeting should be run in accordance with the rules of parliamentary procedure as with any other members meeting, and there must be an agreement between both sides as to who would chair the meeting. The best choice would be some neutral third party. Before the meeting is convened, however, certain rules of protocol must be established and this is where the board of directors, even if they are the subject of the removal petition, must still make the rules. Obviously, if there is a clear bias or unfairness in the rules favoring one side over the other, then it would subject the board to possible sanctions.

If the normal election procedures are adhered to (in reverse) then the rules can be defended. The only judgment call is to whether proxies will be permitted, or only ballots can be cast. Logic would dictate that if proxies are in use for elections, then they should also be available for removal referendums.

Lastly, if the removal proceedings are successful, then the election of a new board or the appointment of replacement directors is in order. If only part of the board is removed, with a minimum of three directors remaining, then a two-thirds majority can appoint replacement directors to fill the vacancies. If the entire board is removed, you must also follow election procedure used at the initial notice to remove, with proper notice, etc. Yet all of these procedures are contingent upon the removal vote being successful.

Complicated? You bet! That is why a board that is subject to removal must work closely with its legal counsel to make sure its possible removal is legal and proper. Likewise, if an insurgency wishes to remove a board, it must first seek legal counsel familiar with these types of matters so all of its work is not for naught. In almost 34 years of practice, I have seen more defective removals than successful ones, all due to grievous errors, notwithstanding how hard people worked to be successful.

• Jordan Shifrin is an attorney with Kovitz Shifrin Nesbit in Buffalo Grove. Send questions for the column to him at jshifrin@ksnlaw.com. This column is not a substitute for consultation with legal counsel. Past columns can be read at www.ksnlaw.com.