Illinois General Assembly - Full Text of SB3243
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Full Text of SB3243  100th General Assembly




State of Illinois
2017 and 2018


Introduced 2/15/2018, by Sen. John G. Mulroe


215 ILCS 5/Art. IIB heading new
215 ILCS 5/35B-1 new
215 ILCS 5/35B-5 new
215 ILCS 5/35B-10 new
215 ILCS 5/35B-15 new
215 ILCS 5/35B-20 new
215 ILCS 5/35B-25 new
215 ILCS 5/35B-30 new
215 ILCS 5/35B-35 new
215 ILCS 5/35B-40 new
215 ILCS 5/35B-45 new
215 ILCS 5/35B-50 new
215 ILCS 5/156  from Ch. 73, par. 768

    Amends the Illinois Insurance Code. Creates the Domestic Stock Company Division Article in the Code. Provides that a domestic stock company may divide into 2 or more resulting companies pursuant to a plan of division. Contains provisions concerning the contents of the plan of division, approval of the plan of division by the Director of Insurance, effects of a division, certificates of division, liabilities, and shareholder rights. Makes conforming changes in provisions concerning mergers and consolidations.

LRB100 20781 SMS 36269 b





SB3243LRB100 20781 SMS 36269 b

1    AN ACT concerning regulation.
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
4    Section 5. The Illinois Insurance Code is amended by adding
5Article IIB and by changing Section 156 as follows:
6    (215 ILCS 5/Art. IIB heading new)

8    (215 ILCS 5/35B-1 new)
9    Sec. 35B-1. Short title. This Article may be cited as the
10Domestic Stock Company Division.
11    (215 ILCS 5/35B-5 new)
12    Sec. 35B-5. Purpose. The purpose of this Article is to
13stimulate economic development in the State of Illinois by
14creating and sustaining employment opportunities and
15increasing and sustaining taxable revenue, through improving
16the competitive position of domestic stock companies,
17maintaining the competitiveness of this State as a state of
18domicile for domestic stock companies, and enhancing the
19desirability of this State as a jurisdiction of domicile for
20newly incorporating and existing foreign stock companies.



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1    (215 ILCS 5/35B-10 new)
2    Sec. 35B-10. Definitions. As used in this Article:
3    "Assets" means all assets or property, whether real,
4personal or mixed, tangible or intangible, and any right or
5interest therein, including all rights under contracts and
6other agreements.
7    "Capital" means the capital stock component of statutory
8surplus, as defined in the National Association of Insurance
9Commissioners Accounting Practices and Procedures Manual,
10version effective January 1, 2001, and subsequent revisions.
11    "Divide" or "division" means the act by operation of law by
12which a domestic stock company divides into 2 or more resulting
13companies in accordance with a plan of division and this
15    "Dividing company" means a domestic stock company that
16approves a plan of division pursuant to Section 35B-20;
17    "Domestic stock company" means a domestic stock company
18transacting or being organized to transact any of the kinds of
19insurance business enumerated in Section 4.
20    "Liability" means a liability or obligation of any kind,
21character, or description, whether known or unknown, absolute
22or contingent, accrued or unaccrued, disputed or undisputed,
23liquidated or unliquidated, secured or unsecured, joint or
24several, due or to become due, determined, determinable, or
26    "New company" means a domestic stock company that is



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1created by a division occurring on or after the effective date
2of this amendatory Act of the 100th General Assembly.
3    "Plan of division" means a plan of division approved by a
4dividing company in accordance Section 35B-20.
5    "Policy liability" means a liability as defined in this
6Section arising out of or related to an insurance policy,
7contract of insurance, or reinsurance agreement.
8    "Recorder" means the office of the recorder of the county
9where the principal office of a domestic stock company is
11    "Resulting company" means a domestic stock company created
12by a division or a dividing company that survives a division.
13    "Shareholder" means the person in whose name shares are
14registered in the records of a corporation or the beneficial
15owner of shares to the extent of the rights granted by a
16nominee certificate on file with a corporation.
17    "Sign" or "signature" includes a manual, facsimile, or
18conformed or electronic signature.
19    "Surplus" means total statutory surplus less capital,
20calculated in accordance with the National Association of
21Insurance Commissioners Accounting Practices and Procedures
22Manual, version effective January 1, 2001, and subsequent
24    "Transfer" includes an assignment, assumption, conveyance,
25sale, lease, encumbrance, including a mortgage or security
26interest, gift, or transfer by operation of law.



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1    (215 ILCS 5/35B-15 new)
2    Sec. 35B-15. Plan of division.
3    (a) A domestic stock company may, in accordance with the
4requirements of this Article, divide into 2 or more resulting
5companies pursuant to a plan of division.
6    (b) Each plan of division shall include:
7        (1) the name of the domestic stock company seeking to
8    divide;
9        (2) the name of each resulting company that will be
10    created by the proposed division;
11        (3) for each new company that will be created by the
12    proposed division, a copy of its:
13            (A) proposed articles of incorporation;
14            (B) proposed bylaws; and
15            (C) the kinds of insurance business enumerated in
16        Section 4 that the new company would be authorized to
17        conduct;
18        (4) the manner of allocating between or among the
19    resulting companies:
20            (A) the assets of the domestic stock company that
21        will not be owned by all of the resulting companies as
22        tenants in common pursuant to Section 35B-35; and
23            (B) the liabilities of the domestic stock company,
24        including policy liabilities, to which not all of the
25        resulting companies will become jointly and severally



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1        liable pursuant to paragraph (3) of subsection (a) of
2        Section 35B-40;
3        (5) the manner of distributing shares in the new
4    companies to the dividing company or its shareholders;
5        (6) a reasonable description of the liabilities,
6    including policy liabilities, and items of capital,
7    surplus, or other assets, in each case, that the domestic
8    stock company proposes to allocate to each resulting
9    company, including specifying the reinsurance contract,
10    reinsurance coverage obligations, and related claims that
11    are applicable to those policies;
12        (7) all terms and conditions required by the laws of
13    this State or the articles of incorporation and bylaws of
14    the domestic stock company;
15        (8) evidence demonstrating that the interest of all
16    classes of policyholders of the dividing company will be
17    properly protected; and
18        (9) all other terms and conditions of the division.
19    Nothing in this subsection (b) shall expand or reduce the
20allocation and assignment of reinsurance as stated in the
21reinsurance contract.
22    (c) If the domestic stock company survives the division,
23the plan of division shall include, in addition to the
24information required by subsection (b):
25        (1) all proposed amendments to the dividing company's
26    articles of incorporation and bylaws, if any;



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1        (2) if the dividing company desires to cancel some, but
2    less than all, shares in the dividing company, the manner
3    in which it will cancel such shares; and
4        (3) if the dividing company desires to convert some,
5    but less than all, shares in the dividing company into
6    shares, securities, obligations, money, other property,
7    rights to acquire shares or securities, or any combination
8    thereof, a statement disclosing the manner in which it will
9    convert the shares.
10    (d) If the domestic stock company does not survive the
11proposed division, the plan of division shall contain, in
12addition to the information required by subsection (b), the
13manner in which the dividing company will cancel or convert
14shares in the dividing company into shares, securities,
15obligations, money, other property, rights to acquire shares or
16securities, or any combination thereof.
17    (e) Terms of a plan of division may be made dependent on
18facts objectively ascertainable outside of the plan of
20    (f) A dividing company may amend a plan of division in
21accordance with any procedures set forth in the plan of
22division or, if no such procedures are set forth in the plan of
23division, in any manner determined by the board of directors of
24the dividing company, except that a shareholder that was
25entitled to vote on or consent to approval of the plan of
26division is entitled to vote on or consent to any amendment of



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1the plan of division that will change:
2        (1) the amount or kind of shares, securities,
3    obligations, money, other property, rights to acquire
4    shares or securities, or any combination thereof, to be
5    received by any of the shareholders of the dividing company
6    under the plan of division;
7        (2) the articles of incorporation or bylaws of any
8    resulting company that will be in effect when the division
9    becomes effective, except for changes that do not require
10    approval of the shareholders of the resulting company under
11    its articles of incorporation or bylaws; or
12        (3) any other terms or conditions of the plan of
13    division, if the change would adversely affect the
14    shareholders in any material respect.
15    (g) A dividing company may abandon a plan of division after
16it has approved the plan of division without any action by the
17shareholders and in accordance with any procedures set forth in
18the plan of division or, if no such procedures are set forth in
19the plan of division, in a manner determined by the board of
20directors of the dividing company.
21    (h) A dividing company may abandon a plan of division after
22it has filed a certificate of division with the recorder by
23filing with the recorder, with concurrent copy to the director,
24a certificate of abandonment signed by the dividing company.
25The certificate of abandonment shall be effective on the date
26it is filed with the recorder and the dividing company shall be



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1deemed to have abandoned its plan of division on such date.
2    (i) A dividing company may not abandon or amend its plan of
3division once the division becomes effective.
4    (215 ILCS 5/35B-20 new)
5    Sec. 35B-20. Requirements of a plan of division.
6    (a) A domestic stock company shall not file a plan of
7division with the Director unless the plan of division has been
8approved in accordance with:
9        (1) any applicable provisions of its articles of
10    incorporation and bylaws; and
11        (2) all laws of this State governing the internal
12    affairs of a domestic stock company that provide for
13    approval of a merger.
14    (b) If any provision of the articles of incorporation or
15bylaws of a domestic stock company requires that a specific
16number or percentage of board of directors or shareholders
17approve the proposal or adoption of a plan of merger, or
18imposes other special procedures for the proposal or adoption
19of a plan of merger, such domestic stock company shall adhere
20to such provision in proposing or adopting a plan of division.
21If any provision of the articles of incorporation or bylaws of
22a domestic stock company is amended, such amendment shall
23thereafter apply to a division only in accordance with its
24express terms.



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1    (215 ILCS 5/35B-25 new)
2    Sec. 35B-25. Plan of division approval.
3    (a) A division shall not become effective until it is
4approved by the Director after reasonable notice and a public
5hearing, if the notice and hearing are deemed by the Director
6to be in the public interest. The Director shall hold a public
7hearing if one is requested by the dividing company. A hearing
8conducted under this Section shall be conducted in accordance
9with Article 10 of the Illinois Administrative Procedure Act.
10    (b) The Director shall approve a plan of division unless
11the Director finds that:
12        (1) the interest of any class of policyholder or
13    shareholder of the dividing company will not be properly
14    protected;
15        (2) each new company created by the proposed division,
16    except a new company that is a nonsurviving party to a
17    merger pursuant to subsection (b) of Section 156, would be
18    ineligible to receive a license to do insurance business in
19    this State pursuant to Section 5;
20        (3) the proposed division violates a provision of the
21    Uniform Fraudulent Transfer Act;
22        (4) the division is being made for purposes of
23    hindering, delaying, or defrauding any policyholders or
24    other creditors of the dividing company;
25        (5) one or more resulting companies will not be solvent
26    upon the consummation of the division; or



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1        (6) the remaining assets of one or more resulting
2    companies will be, upon consummation of a division,
3    unreasonably small in relation to the business and
4    transactions in which the resulting company was engaged or
5    is about to engage.
6    (c) In determining whether the standards set forth in
7paragraph (3) of subsection (b) have been satisfied, the
8Director shall only apply the Uniform Fraudulent Transfer Act
9to a dividing company in its capacity as a resulting company
10and shall not apply the Uniform Fraudulent Transfer Act to any
11dividing company that is not proposed to survive the division.
12    (d) In determining whether the standards set forth in
13paragraphs (3), (4), (5), and (6) of subsection (b) have been
14satisfied, the Director may consider all proposed assets of the
15resulting company, including, without limitation, reinsurance
16agreements, parental guarantees, support or keep well
17agreements, or capital maintenance or contingent capital
18agreements, in each case, regardless of whether the same would
19qualify as an admitted asset as defined in Section 3.1.
20    (e) In determining whether the standards set forth in
21paragraph (3) of subsection (b) have been satisfied, with
22respect to each resulting company, the Director shall, in
23applying the Uniform Fraudulent Transfer Act, treat:
24        (1) the resulting company as a debtor;
25        (2) liabilities allocated to the resulting company as
26    obligations incurred by a debtor;



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1        (3) the resulting company as not having received
2    reasonably equivalent value in exchange for incurring the
3    obligations; and
4        (4) assets allocated to the resulting company as
5    remaining property.
6    (f) All information, documents, materials, and copies
7thereof submitted to, obtained by, or disclosed to the Director
8in connection with a plan of division or in contemplation
9thereof, including any information, documents, materials, or
10copies provided by or on behalf of a domestic stock company in
11advance of its adoption or submission of a plan of division,
12shall be confidential and shall be subject to the same
13protection and treatment in accordance with Section 131.14d as
14documents and reports disclosed to or filed with the Director
15pursuant to Section 131.14b until such time, if any, as a
16notice of the hearing contemplated by subsection (a) is issued.
17    (g) From and after the issuance of a notice of the hearing
18contemplated by subsection (a), all business, financial, and
19actuarial information that the domestic stock company requests
20confidential treatment, other than the plan of division, shall
21continue to be confidential and shall not be available for
22public inspection and shall be subject to the same protection
23and treatment in accordance with Section 131.14d as documents
24and reports disclosed to or filed with the Director pursuant to
25Section 131.14b.
26    (h) All expenses incurred by the Director in connection



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1with proceedings under this Section, including expenses for the
2services of any attorneys, actuaries, accountants, and other
3experts as may be reasonably necessary to assist the Director
4in reviewing the proposed division, shall be paid by the
5dividing company filing the plan of division. A dividing
6company may allocate expenses described in this subsection in a
7plan of division in the same manner as any other liability.
8    (i) If the Director approves a plan of division, the
9Director shall issue an order that shall be accompanied by
10findings of fact and conclusions of law.
11    (j) The conditions in this Section for freeing one or more
12of the resulting companies from the liabilities of the dividing
13company and for allocating some or all of the liabilities of
14the dividing company shall be conclusively deemed to have been
15satisfied if the plan of division has been approved by the
16Director in a final order that is not subject to further
18    (215 ILCS 5/35B-30 new)
19    Sec. 35B-30. Certificate of division.
20    (a) After a plan of division has been adopted and approved,
21an officer or duly authorized representative of the dividing
22company shall sign a certificate of division.
23    (b) The certificate of division shall set forth:
24        (1) the name of the dividing company;
25        (2) a statement disclosing whether the dividing



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1    company will survive the division;
2        (3) the name of each new company that will be created
3    by the division;
4        (4) the kinds of insurance business enumerated in
5    Section 4 that the new company will be authorized to
6    conduct;
7        (5) the date that the division is to be effective,
8    which shall not be more than 90 days after the dividing
9    company has filed the certificate of division with the
10    recorder, with a concurrent copy to the Director;
11        (6) a statement that the division was approved by the
12    Director in accordance with Section 35B-25;
13        (6) a statement that the dividing company provided, no
14    later than 10 business days after the dividing company
15    filed the plan of division with the Director, reasonable
16    notice to each reinsurer that is party to a reinsurance
17    contract that is applicable to the policies included in the
18    plan of division;
19        (7) if the dividing company will survive the division,
20    an amendment to its articles of incorporation or bylaws
21    approved as part of the plan of division;
22        (8) for each new company created by the division, its
23    articles of incorporation and bylaws, provided that the
24    articles of incorporation and bylaws need not state the
25    name or address of an incorporator; and
26        (9) a reasonable description of the capital, surplus,



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1    other assets and liabilities, including policy
2    liabilities, of the dividing company that are to be
3    allocated to each resulting company.
4    (c) The articles of incorporation and bylaws of each new
5company must satisfy the requirements of the laws of this
6State, provided that the documents need not be signed or
7include a provision that need not be included in a restatement
8of the document.
9    (d) A certificate of division is effective when filed with
10the recorder, with a concurrent copy to the Director, as
11provided in this Section or on another date specified in the
12plan of division, whichever is later, provided that a
13certificate of division shall become effective not more than 90
14days after it is filed with the recorder. A division is
15effective when the relevant certificate of division is
17    (215 ILCS 5/35B-35 new)
18    Sec. 35B-35. Effects of division.
19    (a) When a division becomes effective pursuant to Section
21        (1) if the dividing company has survived the division:
22            (A) it continues to exist;
23            (B) its articles of incorporation shall be
24        amended, if necessary, as provided in the plan of
25        division; and



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1            (C) its bylaws shall be amended, if necessary, as
2        provided in the plan of division;
3        (2) if the dividing company has not survived the
4    division, its separate existence ceases to exist;
5        (3) each new company:
6            (A) comes into existence;
7            (B) shall hold any capital, surplus, and other
8        assets allocated to such new company by the plan of
9        division as a successor to the dividing company,
10        automatically, by operation of law and not by transfer,
11        whether directly or indirectly; and
12            (C) its articles of incorporation, if any, and
13        bylaws, if any, shall be effective;
14        (4) capital, surplus, and other assets of the dividing
15    company:
16            (A) that is allocated by the plan of division
17        either:
18                (i) vests in the applicable new company as
19            provided in the plan of division; or
20                (ii) remains vested in the dividing company as
21            provided in the plan of division;
22            (B) that is not allocated by the plan of division
23        either:
24                (i) remains vested in the dividing company, if
25            the dividing company survives the division; or
26                (ii) is allocated to and vests equally in the



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1            resulting companies as tenants in common, if the
2            dividing company does not survive the division; or
3            (C) otherwise vests as provided in this subsection
4        without transfer, reversion, or impairment;
5        (5) a resulting company to which a cause of action is
6    allocated as provided in paragraph (4) of this subsection
7    (a) may be substituted or added in any pending action or
8    proceeding to which the dividing company is a party when
9    the division becomes effective;
10        (6) the liabilities, including policy liabilities, of
11    the dividing company are allocated between or among the
12    resulting companies as provided in Section 35B-40 and each
13    resulting company to which liabilities are allocated is
14    liable only for those liabilities, including policy
15    liabilities, so allocated as successors to the dividing
16    company, automatically, by operation of law, and not by
17    transfer (or, for the avoidance of doubt, assumption),
18    whether directly or indirectly; and
19        (7) the shares in the dividing company that are to be
20    converted or canceled in the division are converted or
21    canceled, and the shareholders of those shares are entitled
22    only to the rights provided to them under the plan of
23    division and any appraisal rights that they may have
24    pursuant to Section 35B-45.
25    (b) Except as provided in the articles of incorporation or
26bylaws of the dividing company, the division does not give rise



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1to any rights that a shareholder, director of a domestic stock
2company, or third party would have upon a dissolution,
3liquidation, or winding up of the dividing company.
4    (c) The allocation to a new company of capital, surplus, or
5other assets that is collateral covered by an effective
6financing statement shall not be effective until a new
7financing statement naming the new company as a debtor is
8effective under the Uniform Commercial Code.
9    (d) Unless otherwise provided in the plan of division, the
10shares in and any securities of each new company shall be
11distributed to:
12        (1) the dividing company, if it survives the division;
13    or
14        (2) shareholders of the dividing company that do not
15    assert any appraisal rights that they may have pursuant to
16    Section 35B-45, pro rata.
17    (215 ILCS 5/35B-40 new)
18    Sec. 35B-40. Resulting company liabilities.
19    (a) Except as otherwise expressly provided in this Section,
20when a division becomes effective, each resulting company is
21responsible, automatically, by operation of law, for:
22        (1) individually, the liabilities, including policy
23    liabilities, that the resulting company issues,
24    undertakes, or incurs in its own name after the division;
25        (2) individually, the liabilities, including policy



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1    liabilities, of the dividing company that are allocated to
2    or remain the liability of the resulting company to the
3    extent specified in the plan of division; and
4        (3) jointly and severally with the other resulting
5    companies, the liabilities, including policy liabilities,
6    of the dividing company that are not allocated by the plan
7    of division.
8    (b) Except as otherwise expressly provided in this Section,
9when a division becomes effective, no resulting company is
10responsible for or shall have any liability or obligation in
11respect of:
12        (1) any liabilities, including policy liabilities,
13    that another resulting company issues, undertakes, or
14    incurs in its own name after the division; or
15        (2) any liabilities, including policy liabilities, of
16    the dividing company that are allocated to or remain the
17    liability of another resulting company in accordance with
18    the plan of division.
19    (c) If a provision of a debt security, note, or similar
20evidence of indebtedness for money borrowed, whether secured or
21unsecured, indenture or other contract relating to
22indebtedness, or a provision of any other type of contract
23other than an insurance policy, annuity, or reinsurance
24agreement, that was issued, incurred, or executed by the
25domestic stock company before requires the consent of the
26obligee to a merger of the dividing company or treats the



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1merger as a default, that provision applies to a division of
2the dividing company as if the division was a merger.
3    (d) If a division breaches a contractual obligation of the
4dividing company at the time the division becomes effective,
5all of the resulting companies are liable, jointly and
6severally, for the contractual breach, but the validity and
7effectiveness of the division, including, without limitation,
8the allocation of liabilities in accordance with the plan of
9division, shall not be affected by the contractual breach.
10    (e) A direct or indirect allocation of capital, surplus,
11assets, or liabilities, including policy liabilities, in a
12division shall occur automatically, by operation of law, and
13shall not be treated as a distribution or transfer for any
14purpose with respect to either the dividing company or any of
15the resulting companies.
16    (f) Liens, security interests, and other charges on the
17capital, surplus, or other assets of the dividing company are
18not impaired by the division, notwithstanding any otherwise
19enforceable allocation of liabilities, including policy
20liabilities, of the dividing company.
21    (g) If the dividing company is bound by a security
22agreement governed by Article 9 of the Uniform Commercial Code
23as enacted in this State or in any other jurisdiction, and the
24security agreement provides that the security interest
25attaches to after-acquired collateral, each resulting company
26is bound by the security agreement.



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1    (h) An allocation of a policy or other liability does not:
2        (1) except as provided in the plan of division and
3    specifically approved by the Director, affect the rights
4    that a policyholder or creditor has under other law in
5    respect of the policy or other liability, except that those
6    rights are available only against a resulting company
7    responsible for the policy or liability under this Section;
8    or
9        (2) release or reduce the obligation of a reinsurer,
10    surety, or guarantor of the policy or liability.
11    (i) A resulting company shall only be liable for the
12liabilities allocated to it in accordance with the plan of
13division and this Section and shall not be liable for any other
14liabilities under the common law doctrine of successor
15liability or a similar theory of liability applicable to
16transferees or assignees of property.
17    (215 ILCS 5/35B-45 new)
18    Sec. 35B-45. Shareholder rights. If the dividing company
19does not survive the division, an objecting shareholder of a
20dividing company is entitled to appraisal rights and to obtain
21payment of the fair value of that shareholder's shares, in the
22same manner and to the extent provided for pursuant to Section
24    (215 ILCS 5/35B-50 new)



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1    Sec. 35B-50. Rules. The Director may adopt such rules as
2are necessary or appropriate to carry out this Article.
3    (215 ILCS 5/156)  (from Ch. 73, par. 768)
4    Sec. 156. Merger and consolidation permitted.
5    (a) Upon complying with the provisions of this article, any
6domestic company, except a Lloyds, is hereby authorized and
7empowered to merge or consolidate with any domestic company or
8with any foreign or alien company, except a Lloyds if the
9surviving company meets the requirements for authorization to
10engage in the insurance business in this state and, if such
11merger or consolidation is authorized by the laws of the state
12or country under which such foreign or alien company is
13incorporated or organized.
14    (b) The Director may permit the formation of a domestic
15stock company that is established for the sole purpose of
16merging or consolidating with an existing stock company
17simultaneously with the effectiveness of a division authorized
18by this Code. Upon request of the dividing company, the
19Director may waive the requirements of Section 131.8 of this
20Code. Each domestic stock company formed under this subsection
21shall be deemed to exist before a merger and division under
22this Section becomes effective, but solely for the purpose of
23being a party to such merger and division. The Director shall
24not require that such domestic stock company be licensed to
25transact insurance business in this state before such merger



SB3243- 22 -LRB100 20781 SMS 36269 b

1and division. All insurance policies, annuities, or
2reinsurance agreements allocated to such domestic stock
3company shall become the obligation of the domestic stock
4company that survives the merger simultaneously with the
5effectiveness of the merger and division. The plan of merger or
6consolidation shall be deemed to have been authorized and
7approved by such domestic stock company if the dividing company
8authorized and approved such plan. The certificate of merger
9shall state that it was approved by the domestic stock company
10formed under this subsection.
11(Source: Laws 1967, p. 1760.)