HB 101 - CORPORATE PUBLIC UTILITY REINSTATEMENT Number 1659 CHAIRMAN ROKEBERG announced the committee's next order of business is HB 101, "An Act relating to the reinstatement of corporations that are public utilities; and providing for an effective date." Number 1670 REPRESENTATIVE HALCRO moved to adopt the proposed committee substitute (CS) for HB 101, labeled 1-LS0469\D, Bannister, 3/16/99, as the working document before the committee. There being no objection, it was so ordered. Number 1704 REPRESENTATIVE CARL MORGAN, Alaska State Legislature, came forward as the bill sponsor. He read the following sponsor statement into the record: "This legislation is a vehicle to allow the Alaska Department of Commerce and Economic Development the discretion to reinstate, as a corporation, a local telecommunications company that serves several communities in western Alaska. "After reviewing the facts and circumstances surrounding the issue, I hope that you will agree that this measure warrants our attention and support. The following are the facts surrounding the involuntary dissolution of Bush-Tell. "Bush-Tell is a small, rural local telephone company located in Aniak, Alaska, which provides local telephone service to ten small villages in western Alaska. Bush-Tell was incorporated on November 10, 1969 and has been providing telecommunication service since 1970. Mr. Bob Colliver, Jr., the President and sole shareholder of Bush-Tell, recently contacted the Alaska Division of Banking, Securities and Corporations [Department of Commerce and Economic Development], to find out about registering a 'dba' [doing business as] and was informed that Bush-Tell was no longer registered as a corporation with the division. Bush-Tell had been involuntarily dissolved in 1993 for failing to file its biennial report and/or failing to pay its biennial corporate tax for the period ending December 31, 1992. Upon investigation, it was discovered that Bush-Tell's registered agent had failed to follow the proper statutory procedures for resigning as a registered agent and his omission resulted in the involuntary dissolution of Bush-Tell." Number 1815 "Bush-Tell's designated agent was a sole practitioner in Anchorage, Alaska who also served as Bush-Tell's general counsel. In the early 1980s, Bush-Tell hired another law firm to do its legal work but continued to retain the sole practitioner as its registered agent. The forms for Bush-Tell's biennial reports were sent to the registered agent and were filed by the registered agent up to and including the period ending December 31, 1990 In 1991, the registered agent left the private practice of law, closed his office and left a forwarding address for his mail with the U.S. Postal Service. The registered agent did not inform the Alaska Division of Banking, Securities and Corporations that his address was changing or that he was resigning as Bush-Tell's registered agent. State Statute 10.06.170(b) requires that, if a registered agent resigns, the registered agent must file a written notice with the commissioner setting out the latest address of the principal's office of the corporation and the names, addresses and the title of the most recent officers of the corporation. The commission must then immediately mail a copy of the notice to the corporation at its principal office." Number 1903 "On July 12, 1993, the Alaska Division of Banking, Securities and Corporations sent a notice by certified mail to Bush-Tell, care of the registered agent, informing Bush-Tell that it had not filed its biennial report and/or tax for the period ending December 31, 1992 and that, if the biennial report and/or tax are not mailed by September 19, 1993, the Certificate of Involuntary Dissolution will be issued and the corporation will cease to exist as of September 20, 1993. This notice was returned to the Alaska Division of Banking, Securities and Corporations because the registered agent's forwarding notice had expired. On September 20, 1993, Bush-Tell was involuntarily dissolved. "Since the time of this dissolution, and even after discovering the involuntary dissolution, Bush-Tell has observed all of the corporate procedures required by its bylaws and Alaska law including holding regular board of directors meetings and paying corporate income taxes." Number 1997 REPRESENTATIVE MORGAN mentioned the suggestion that HB 101 be amended to include all corporations had been brought up in the last hearing. He explained that HB 101 was drafted on a narrow bias because it is his understanding that this is the way the legislature has handled these types of issues in the past. He believes this to be the best approach. CHAIRMAN ROKEBERG said the original bill only included Sections 10 and 11. When it was before the House Special Committee on Utility Restructuring, there were recommendations to see if the legislature could develop a method which would avoid this type of situation in the future. REPRESENTATIVE MORGAN agreed. CHAIRMAN ROKEBERG further noted that the other provisions of the bill relate to trying to ameliorate the problem that occurred by setting the mailing requirements, and so forth, in statute. This was a request of the House Special Committee on Utility Restructuring. Those suggested changes have been added to HB 101 in the proposed CS. Number 2060 REPRESENTATIVE MURKOWSKI referred to Representative Morgan's comment that he drafted his legislation very narrowly for a specific purpose. She asked Representative Morgan how he viewed the changes which expand the legislation beyond its initial purpose. REPRESENTATIVE MORGAN replied that he has no problem with the amendments. However, his biggest concern is that other corporations will have to follow the strict guidelines. REPRESENTATIVE HALCRO referred to Representative Morgan's statement that after Bush-Tell was involuntarily dissolved, board meetings were still held and income taxes were still paid. He asked if the owner knew that Bush-Tell was involuntarily dissolved. Did the owner get receipts or notification while continuing to pay income tax? Number 2138 HEATHER GRAHAME, Partner, Dorsey and Whitney LLP, testified via teleconference from Anchorage. She noted her firm represents Bush-Tell. Ms. Grahame responded that Bush-Tell did continue to follow all corporate formalities including holding scheduled board meetings. However, she does not believe Bush-Tell filed a biennial report. In fact, Dorsey and Whitney tried to file one on Bush-Tell's behalf this year and the Division of Banking, Securities and Corporations rejected it. REPRESENTATIVE HALCRO again referred to the statement that Bush-Tell continued to pay income tax. Representative Halcro hoped that Bush-Tell is not faced with a penalty even though it was involuntarily dissolved. MS. GRAHAME remarked that if this legislation doesn't pass there will be significant issues relating to income taxes. CHAIRMAN ROKEBERG asked if those issues would result because Bush-Tell would lose its corporate status which would necessitate the recalculation all taxes and other obligations under a different organizational structure. Number 2194 MS. GRAHAME replied that is correct. One of her biggest fears is that, for example, the IRS [Internal Revenue Service] would then attribute any income that Bush-Tell received from 1993 on, to Mr. Colliver himself. CHAIRMAN ROKEBERG interjected that Mr. Colliver's business could possibly be constructed as a sole proprietorship. MS. GRAHAME agreed. REPRESENTATIVE HALCRO said he wanted to get back to the penalty aspect. He asked if Bush-Tell, due to the involuntary dissolution of the corporation, would face any kind of a penalty for failing to communicate with the state. Number 2282 MS. GRAHAME responded that there is a penalty, 10 percent of the amount of the biennial tax assessed, for failure to pay a biennial report which is set forth under AS 10.06.815. She believed the biennial tax in this period of time was $60.00. If that is correct, that penalty is quite nominal. REPRESENTATIVE HARRIS reiterated that, "All the other sections, besides Sections 10 and 11 are referring to the method that they will notice in the future ... and they have been doing that -- but whether that qualifies. So, that's Representative Morgan's bill and the bill for Bush-Tell is really that one section. And not to move too fast -- but the amendments on our desk have to do with that subject as well." CHAIRMAN ROKEBERG agreed that the mailing procedure has nothing to do with the substantive portion of the bill. He asked Ms. Grahame if she could have gone to the courts under the corporate code and received a reinstatement. Number 2344 MS. GRAHAME responded absolutely not. She noted that the reason Bush-Tell couldn't go to court is because the timely demand in response to the notice of the dissolution is a 60-day period after the notice was sent out. In this case, it was mailed in 1993. Therefore, there is no remedy other than a statutory remedy. Ms. Grahame pointed out that this has been conducted several times in the past. She referred to AS 10.06.960(i) and (k) and noted that amendments have been made to the corporations' code to legislatively reinstate Alaska Native corporations that were involuntarily dissolved. She reiterated that this is the only remedy for Bush-Tell, a small rural telephone company. CHAIRMAN ROKEBERG asked if the Alaska Statute allowed reinstatement within a two-year period. MS. GRAHAME responded that it did, however, when the state dissolved Bush-Tell, the notice was sent only to the registered agent. As Representative Morgan stated, the registered agent's address had expired so the notice was returned to the state and the state never contacted Bush-Tell itself, or anyone associated with the public utility. The latest that it could have been reinstated by the Division of Banking, Securities and Corporations would have been 1995. Bush-Tell didn't discover its dissolution until 1998. CHAIRMAN ROKEBERG indicated that the two-year window did not work for Ms. Grahame but that it is available in the law. MS. GRAHAME replied that is correct. Number 2453 CHAIRMAN ROKEBERG further stated that, "As one of the issues that was before the [House ] Special Committee [on Utility Restructuring] was the potentiality of deviating from the two years and expanding that window to allow a pleading in court ... for reinstatement - under a longer window, for example, say, four years to help remedy this problem in the future. But I think we'll bring that up with the department [Department of Commerce and Economic Development], and they would object to that. But would that have helped you? Or could that help other corporations in the same straights?" MS. GRAHAME responded that it might help other corporations. She noted that the Division of Banking, Securities and Corporations, felt that might dissuade corporations from acting responsibly. She thinks the division's view is that if notice was actually given to the corporation, that should cure the problem. However, on this sort of an issue, Ms. Grahame to deferred to the Division of Banking, Securities and Corporations. CHAIRMAN ROKEBERG asked Ms. Grahame, as counsel to Bush-Tell, if she would like to see other corrections in the law that would help other corporations in the future. Number 2486 MS. GRAHAME replied, "I think the bill -- as long as notice has to be given to the corporation..." [TESTIMONY INTERRUPTED BY TAPE CHANGE] [From tape log notes: "as well as registered agent"] TAPE 99-25, SIDE B Number 0001 MS. GRAHAME continued, "I think your amendment that I saw today [will] cure the problem." Number 0021 REPRESENTATIVE MURKOWSKI referred to Section 10, regarding the reinstatement, which allows a public utility corporation until the end of the year to do the reinstatement. She asked if there is anybody else in a similar circumstance. MS. GRAHAME replied that she is not aware of any corporation in this circumstance other than Bush-Tell. CHAIRMAN ROKEBERG said, "Well, it's a potentiality and that's why it's broad enough not to ask for a public utilities as opposed to doing something that might be characterized as special legislation which is unconstitutional in the state of Alaska." Number 0061 CHAIRMAN ROKEBERG asked Ms. Grahame to draft a letter of support that might help people understand the new section - how it fits in and makes the bill whole. MS. GRAHAME acknowledged that she will provide the letter. She added that the legislature has an opportunity to fix a serious legal problem for a small rural telephone company that has been providing high-quality service in rural Alaska since 1970. Number 0111 FRANKLIN TERRY ELDER, Director, Division of Banking, Securities and Corporations, Department of Commerce and Economic Development, came forward in Juneau. He mentioned that he is substituting for Dawn Williams, the corporations supervisor [Dawn Williams, Records and Licensing Supervisor, Department of Commerce and Economic Development], and that the division continues to support HB 101. Mr. Elder noted he has made suggestions for the proposed CS. His understanding is that the committee's intention is to essentially codify the division's current practice. He said, "Except for the couple of suggestions I made, you do that. And, I agree that ... the current practice, and what is in this bill, would lessen the likelihood of these problems in the future." Number 0172 REPRESENTATIVE MURKOWSKI asked if the committee substitute would change the fiscal note. MR. ELDER replied, "With a couple of the suggestions I made to staff, it would not change the fiscal note with..." CHAIRMAN ROKEBERG interjected (indisc.) amendment to the amendment. MR. ELDER continued, "Yes, without those arguably there could be a small fiscal note that would be required." REPRESENTATIVE MURKOWSKI reiterated that there could be a small fiscal note with the proposed CS, however, if the amendments to the Version D are adopted, the fiscal note does not change. MR. ELDER agreed. CHAIRMAN ROKEBERG noted that, following the testimony, Mr. Elder will come back to the table to address the amendments to CSHB 101. Number 0218 REPRESENTATIVE HALCRO said, "I noticed in your statement of support for HB 101 you say that, 'We've increased our diligence in working with corporations to avoid the maximum extent possible inadvertent dissolving of businesses.' Does this mean that when mail comes back to you that you actually physically look up where the corporation's headquartered - or the utility's headquartered and call them and say, 'What's the deal, how can we get this to you?' I mean can you explain to me how we're making sure that this doesn't happen in the future?" MR. ELDER explained that it is his understanding that the mailing used to be sent only to the registered agent. By statute every corporation has to have a registered agent and that agent is supposed to keep the Division of Banking, Securities and Corporations informed as to the name of that person and the proper address. Mr. Elder said the division currently sends the mail to the corporation's office and then to the agent, however, it's also a matter of staff-time and availability. Primarily information is checked: have they provided an address for the corporation's office, is it different from the agent's address, have they provided an address for an officer or a director, and if they have then they make those mailings. Number 0309 REPRESENTATIVE SANDERS said it seems to him that it would the simplest thing in the world for Mr. Elder to write a letter to where the check came from - when people are paying the tax. He asked, "How do you accept my income tax check when I don't have a corporation." MR. ELDER responded the income tax goes to the Department of Revenue and not to the Department of Commerce and Economic Development. REPRESENTATIVE SANDERS questioned that the division does not know anything about that, the division is not connected to it. MR. ELDER replied no, the division is not. REPRESENTATIVE SANDERS questioned that the division does not have any access to it. Number 0334 MR. ELDER said he doesn't know what the department's access is to tax records and would have to look into that. He pointed out that the payment of income tax is separated from the payment of the biennial tax. REPRESENTATIVE SANDERS suggested that somebody in the state government figure out how to find out where that income tax check came from because it's a disadvantage to the business people. MR. ELDER replied that he will discuss that with division staff and see if there are any problems or prohibitions of having access to that type of information. REPRESENTATIVE BRICE said he would appreciate hearing the outcome because HB 101 has five pages of statute changes, with the possibility of another three. He also agreed with Representative Sanders that the address on the check is obviously going to be an accurate address. Representative Brice remarked that there has to be coordination between the governmental agencies on issues like this. Number 0421 REPRESENTATIVE CISSNA stated that she could see a situation where the income tax would be paid by an accountant or an attorney. REPRESENTATIVE SANDERS interjected that they would know where the person was and would notify him. REPRESENTATIVE CISSNA pointed out that in this case, the counsel, the agent who left the corporation, could have even done that and the same problem would result. REPRESENTATIVE SANDERS indicated that they continued to pay their income tax each year. REPRESENTATIVE CISSNA believed that it would be a good thing to track down. She recognized that this is an enormous amount of detail and wondered if this could be remedied by making this policy of the division. Number 0477 CHAIRMAN ROKEBERG understood that this merely codifies the current policy. MR. ELDER agreed that HB 101 would merely codify the division's current policy. CHAIRMAN ROKEBERG inquired as to whether the registered agent language could be tightened by mandating the responsibility of the registered agent to be current. He acknowledged the difficulty in disciplining the agent in this case because the registered agent just seemed to retire and disappear. MR. ELDER said there is only so much that could be done. Number 0527 CHAIRMAN ROKEBERG noted that there was much discussion on this in the House Special Committee on Utility Restructuring. The main objective is that notice is provided to someone. REPRESENTATIVE MURKOWSKI commented, as a registered agent for several corporations, that there is a fee associated with every change with the exception of the change in mailing address for the registered agent. She indicated that perhaps the fees for simple changes may have to be eliminated. CHAIRMAN ROKEBERG noted that Mr. Elder would be able to provide further testimony after talking with Mr. Rowe. Number 0600 JIM ROWE, Director, Alaska Telephone Association, came forward to testify in support of HB 101. Mr. Rowe informed the committee that Bush-Tell serves about 800 access lines in rural Alaska and has provided high quality service for a number of years. The testimony from the APUC [Alaska Public Utilities Commission], in the last committee, did not have any complaints regarding certification. Mr. Rowe pointed out that they are looking at advanced telecommunications infrastructure. This takes money, which necessitates loans. A noncorporation will not be able to receive loans from the rural utility service, "co-bank," et cetera. Therefore, this would have to be reviewed if this matter is not resolved soon. He appreciated the speedy consideration of HB 101 for this particular situation. With regards to the amendments, Mr. Rowe said the amendments seem to address this situation in order to avoid such in the future. CHAIRMAN ROKEBERG asked if any one else wished to testify. There being no one, the chairman closed the public testimony and invited Mr. Elder back before the committee. Number 0668 REPRESENTATIVE MURKOWSKI asked if there were any other corporations that are similarly situated to Bush-Tell which should be notified of this legislation. MR. ELDER said not to his knowledge. CHAIRMAN ROKEBERG directed the committee to amendment D.1, labeled 1-LS0469\D.1, Bannister, 3/17/99. Number 0713 JANET SEITZ, Legislative Assistant for Representative Rokeberg, Alaska State Legislature came forward. She explained that amendment D.1 would require the department to provide the first notice by certified mail. Amendment D.1 would not require mail returned to be re-mailed to a duplicate address. For example, if the notice mailed to the registered agent was returned then the notice would not be mailed to the next person on the list if that person had the same address. The notice would be mailed to the next person on the list with a different address. Amendment D.1 was sent from Ms. Bannister, Legislative Counsel, Legislative Legal and Research, Legislative Affairs Agency. Ms. Seitz noted that Mr. Elder had some concerns with regard to some of the deletions and placements of "certified". Number 0779 MR. ELDER explained that HB 101 is to codify the current practice. Currently, the first mailing is certified and the subsequent mailings are first class mailings. He believed that Ms. Bannister took that a bit further than necessary with the first two items of amendment D.1. He stated that the deletion of "certified" and insertion of "[CERTIFIED]" on page 1, line 10 of amendment D.1 should not be made because that language refers to the initial mailing. REPRESENTATIVE BRICE referred to amendment D.1 where on page 2, line 22, following "item", "by certified mail" is inserted. He pointed out that both subsections (b) and (d) reference "as provided by (i) of this section", therefore it is a different manner to achieve the same goal. MR. ELDER said that would be fine if that is the intent. After further discussion regarding Mr. Elder's concern with amendment D.1, Mr. Elder did not have any objection to the amendment. CHAIRMAN ROKEBERG reviewed the sections to ensure the language referring to mailing followed the intent to only require a certified mailing for the first notice. Number 1118 MR. ELDER concluded that amendment D.1 was agreeable to him. CHAIRMAN ROKEBERG asked if the new subsection (i) is consistent with the current practice and would therefore, not necessitate a fiscal note. MR. ELDER agreed that the new subsection (i) would be consistent with the current practice. Number 1148 CHAIRMAN ROKEBERG confirmed there were no further questions on the amendment. He noted that amendment D.1 would be marked Amendment 1. Amendment 1, labeled 1-LS0469\D.1, Bannister, 3/17/99, read: Page 1, line 10: Delete "certified" Insert "[CERTIFIED]" Page 2, line 22, following "item": Insert "by certified mail" Page 2, line 25, following "item": Insert "by first class mail" Page 2, line 28, following "item": Insert "by first class mail" Page 2, line 31, following "item": Insert "by first class mail" Page 3, line 3, following "item": Insert "by first class mail" Page 3, line 8, following "again.": Insert "If the address shown on the records of the commissioner for a mailing after the initial certified mailing is not different from the address for the previous mailing, the commissioner is not required to mail the item to the same address, but shall mail the item to the next required addressee whose address is different from the address for the returned mailing, and, if none of the mailings required after a returned mailing has an address that is different from the address for the returned mailing, the commissioner is not required to mail the item again." Page 3, line 14: Delete "certified" Insert "[CERTIFIED]" Page 3, line 24: Delete "by certified mail" Page 3, line 31: Delete "by certified mail" Page 4, line 6: Delete "certified" Insert "[CERTIFIED]" Page 4, line 10: Delete "certified mail" Insert "[CERTIFIED] mail as required under this subsection" Page 4, line 29, following "item": Insert "by certified mail" Page 5, line 1, following "item": Insert "by certified mail" Page 5, line 4, following "item": Insert "by certified mail" Page 5, line 10, following "again.": Insert "If the address shown on the records of the commissioner for a mailing after the initial certified mailing is not different from the address for the previous mailing, the commissioner is not required to mail the item to the same address, but shall mail the item to the next required addressee whose address is different from the address for the returned mailing, and, if none of the mailings required after a returned mailing has an address that is different from the address for the returned mailing, the commissioner is not required to mail the item again." REPRESENTATIVE BRICE moved that Amendment 1 be adopted. There being no objection, Amendment 1 was adopted. Number 1162 REPRESENTATIVE BRICE made a motion to move CSHB 101, version 1-LS0469\D, Bannister, 3/16/99, as amended, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 101(L&C) moved out of the House Labor and Commerce Standing Committee.