[Federal Register Volume 59, Number 3 (Wednesday, January 5, 1994)]
[Notices]
[Pages 640-641]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-103]
[[Page Unknown]]
[Federal Register: January 5, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33379; File No. SR-MSTC-93-10]
Self-Regulatory Organizations; Midwest Securities Trust Company;
Notice of Filing of a Proposed Rule Change Relating to the Limitation
or Elimination of Directors' Liability
December 23, 1993.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 27, 1993, the
Midwest Securities Trust Company (``MSTC'') filed with the Securities
and Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
substantially by MSTC. MSTC amended the filing on October 6, 1993.\2\
The Commission is publishing this notice to solicit comments from
interested persons.
---------------------------------------------------------------------------
\1\15 U.S.C. 78s(b)(1) (1988).
\2\Letter from David T. Rusoff, Foley & Lardner, to Richard
Strasser (Attorney), Division of Market Regulation, Commission
(October 5, 1993).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
MSTC proposes to amend Article Ten of its Articles of Incorporation
and Article VI, Section 1 of its By-Laws to limit or eliminate the
potential monetary liability of its directors to the extent permitted
by the Illinois Business Corporation Act except where such liability is
the result of a violation of the federal securities laws.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, MSTC included statements
concerning the purpose of and statutory basis for the proposed rule
change and discussed any comments it received on the proposal. The text
of these statements may be examined at the places specified in Item IV
below. MSTC has prepared summaries, set forth in sections (A), (B), and
(C) below, of the most significant aspects of such statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The proposal will limit or eliminate the potential monetary
liability of MSTC directors under certain circumstances. The proposed
change is based on Section 2.10(b)(3) of the Illinois Business
Corporation Act, under which MSTC is organized, which allows
corporations to adopt provisions in their articles of incorporation
that limit or eliminate the potential monetary liability of directors
under certain circumstances.
General corporate law imposes a fiduciary duty of care upon each
corporate director. This duty of care requires a director to exercise
informed business judgment in good faith and to act with an honest
believe that the action taken is in the best interest of the
corporation. The proposal will not eliminate an MSTC's director's duty
of care but will limit the personal liability of an MSTC director to
MSTC or its shareholders should the director fail through negligence or
gross negligence to satisfy his or her duty of care.\3\ Under Illinois
law, such limitations of personal liability do not apply in certain
situations.
---------------------------------------------------------------------------
\3\MSTC's proposal will limit a director's liability even if
that director had been grossly negligent provided that the director
exercised informed business judgment in good faith and acted with an
honest belief that the action taken was in the best interest of the
corporation. Because there has been no judicial interpretation on
the scope of the applicable Illinois legislation, it is possible
that an Illinois court may find as a matter of law that a director
cannot act in a manner that is both grossly negligent and in good
faith.
---------------------------------------------------------------------------
The proposal will prohibit limitation of a director's liability in
instances where liability arises directly or indirectly as a result of
a violation of federal securities laws. The proposal will not eliminate
equitable remedies such as rescission or injunctive actions. Moreover,
it will not eliminate the liability of an officer of MSTC for actions
taken in that capacity even if the officer is also a director. Finally,
the proposal will not affect the liability of a director for acts or
omissions that occurred prior to approval of the proposal.
Limiting or eliminating directors' liability will help to ensure
that MSTC will be able to recruit and retain competent directors. Due
to the increased number and magnitude of lawsuits against directors,
many other corporations from various states already have adopted
provisions similar to those in MSTC's proposal.
The proposed rule change is consistent with the requirements of
Section 17A of the Act because it will remove an impediment to
attracting competent directors and thus will help assure the fair
representation of shareholders and participants in the selection of
directors and in the administration of MSTC's affairs.
(B) Self-Regulatory Organization's Statement on Burden on Competition
MSTC believes that no burden will be placed on competition as a
result of the proposed rule change.
(C) Self-Regulatory Organization's Statement of Comments on the
Proposed Rule Change Received From Members, Participants, or Others
No comments were solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which the self-regulatory organization consents,
the Commission will:
(A) By order approve the proposed rule change or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
Copies of the submissions, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying at the
principal office of MSTC. All submissions should refer to File No. SR-
MSTC-93-10 and should be submitted by January 26, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\4\
---------------------------------------------------------------------------
\4\17 CFR 200.30-3(a)(12) (1992).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-103 Filed 1-4-94; 8:45 am]
BILLING CODE 8010-01-M
