HOUSE OF REPRESENTATIVES

                      Olympia, Washington

Bill Analysis      Bill No.  HB 2192

Preventing a nonprofit corporation from entering into certain contracts with the state when certain types of misfeasance, malfeasance, or nonfeasance have been committed.

Brief Title                               Hearing Date: 3/2/99

Reps. Clements                             Staff: Steve Lundin

Sponsor(s)                          State Government Committee

                                              Phone:  786-7127

BACKGROUND:

Various different types of corporations may incorporate in this state by filing articles of incorporation with the Secretary of State, including both for profit corporations and not for profit corporations. Articles of incorporation are filed with the Secretary of State whenever a corporation incorporates.

A foreign corporation may only transact business in this state if it obtains a certificate of authority from the Secretary of State.

SUMMARY:

State agencies are required to apply to the Secretary of State for the administrative suspension of a not for profit corporation=s, or a foreign not for profit corporation=s, Acertificate of incorporation@ if the agency establishes that the corporation meets any of the criteria developed by the director of the Office of Financial Management describing misfeasance, malfeasance, or nonfeasance by the corporation relating to performance of a personal service contract or client service contract with the state agency.  Criteria to establish misfeasance, malfeasance, or nonfeasance include, but are not limited to:

CFailure to meet reporting requirements;

CFraud;

CMisuse of funds;

CFailure to comply, failure to timely complete, or repeatedly violating a corrective action plan;

CMaterial breach of contract;

CDefault on performance of material terms of the contract;

CSignificant overpayments; or

CSignificant double billing.

The Secretary of State must issue a certificate of suspension if a state agency files an application.  The certificate is filed and notice is mailed to the corporation by certified mail.  Once the certificate of suspension is filed, the corporation may not enter into personal service or client service contracts with the state and within three months each state agency is required to terminate any contracts with the corporation for personal services or client services.

The Department of Licensing is notified of the filing of the certificate of suspension, which enters this information in electronic records containing unified business identifiers.

The corporation may file a request with the Secretary of State for an adjudicative proceeding over the filing of the certificate within 20 days of service of the notice.  If the request is timely filed the Secretary of State may not suspend the certificate of incorporation unless the adjudicative proceeding results in a finding that the corporation meets any of these criteria.

The corporation may petition the Secretary of State for reinstatement after an interval determined by the Secretary of State.  An agency that applied to the Secretary of State to suspend the certificate of incorporation of a corporation must recommend that the certificate of incorporation be reinstated if the corporation has remedied the misfeasance, malfeasance, or nonfeasance that was the subject of the application and has taken sufficient corrective action to prevent a reoccurrence.

The Secretary of State shall cancel the certificate of suspension and reinstate the articles of incorporation to unrestricted status if the secretary determines that the corporation has remedied the misfeasance, malfeasance, or nonfeasance that led to the suspension and has taken sufficient corrective action to prevent a reoccurrence, or a court of competent jurisdiction or an administrative law judge orders the reinstatement of the certificate of incorporation.  The Department of Licensing is notified of a suspension.

FISCAL NOTE:  Not requested.

EFFECTIVE DATE:  August 1, 1999.