Relates to the powers and duties of the dormitory authority of the state of New York relative to the establishment of subsidiaries for certain purposes

Summary of provisions

Section 1 of the bill would add a new subdivision 25 to PAL § 1678 to authorize DASNY to create a subsidiary for the purpose of limiting the potential liability of DASNY when exercising its powers and duties in connection with the exercise of remedies by DASNY against North General, an eligible secured borrower (as defined in chapter 590 of the laws of 2002) located in the borough of Manhattan, New York. Among the powers that could be exercised by this subsidiary would be: (i) bidding for, taking, holding, selling; conveying, assigning or transferring title to the mortgaged property; (ii) entering into leases, subleases, operating agreements, security agreements, loan agreements or other encumbrances or arrangements with regard to such property; or (iii) assuming any indebtedness or other liabilities secured by the mortgaged property.

New subdivision 25 would also provide that, notwithstanding any other provision of law to the contrary but in all instances subject to the provisions of any contract with bondholders, the transfer of title to such subsidiary or any other actions taken by DASNY or the subsidiary to enforce DASNY's rights under the mortgage or other security interest would not impair the validity of the bonds, notes or other obligations to which the mortgage or other security interest relates.

New subdivision 25 would specify that the subsidiary be created as a public benefit corporation. The creation of a subsidiary, and the reporting required in connection therewith, would be in compliance with PAL § 2827-a.

Section 2 of this bill would make it effective immediately.

Legislative history

This is a new bill.

Existing law

PAL § 2827-a, enacted in Chapter 506 of the laws of 2009, severely limits the ability of public authorities to create subsidiary

corporations without legislative approval. That section further provides that nothing contained therein grants an authority the power to create a subsidiary where the authority does not otherwise have the power to do so. DASNY currently has no power to create subsidiaries.

Statement in support

On July 2, 2010 North General filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code and has since ceased all healthcare operations. The current Plan of Reorganization (Liquidation) filed by North General (the "Plan") provides that DASNY shall receive fee simple title to the property on which DASNY hold mortgages, subject to two leases, in satisfaction of its secured claims against North General. North General is currently in default under its loan agreements with DASNY and an event of default has been declared. One of the referenced leases is expected to be a long term lease with the New York City Health and Hospitals Corporation ("HHC") under which HHC will operate a long term acute care hospital in the former main hospital building of North General. The other lease to be assigned to DASNY under the Plan is with Institute for Family Health, which currently operates a federally qualified health care center in part of the former North General building.

The purpose of this bill is to enable DASNY to create a subsidiary for the purpose of taking title to mortgaged property that is to be conveyed to DASNY under the Plan, to insulate DASNY and its assets from any potential liability that could arise from accepting title to this property. Although DASNY will have no role in the ongoing health care activities conducted there or the operation and maintenance of the properties, there is the potential that that DASNY, as owner of the property, could be subjected to lawsuits as the owner of the property arising out of incidents occurring on the campus. In addition, it is also possible that DASNY could be exposed to potential liabilities from the presence of hazardous substances on the property. DASNY could avoid these potential liabilities by having title to the mortgaged property transferred to the subsidiary authorized to be created under the bill instead of DASNY.

PAL § 2827-a provides that no state authority shall have the power to organize any subsidiary corporation, except under certain limited circumstances, unless the legislature shall have enacted a law granting an authority that power. Consistent with this provision, the bill would grant legislative authorization to DASNY to create a subsidiary for the limited purpose of exercising DASNY's rights under the mortgages granted to DASNY by North General.

Budget implications

The bill would have no fiscal impact on the State or localities, except to the extent it would shield DASNY from potential liabilities.

Effective date

The bill would take effect immediately.