2011 California Code
Corporations Code
TITLE 1. CORPORATIONS [100 - 14551]
ARTICLE 4. Executive Director
Section 14028

(a) Upon a finding by the director that irreparable harm may occur if guarantee authority is not temporarily withdrawn from a corporation, the director may temporarily withdraw guarantee authority from a corporation. The notice of temporary withdrawal sent to the corporation shall specify the reasons for the action. As used in this section, guarantee authority means the authority to make or guarantee any loan that encumbers funds in a trust fund account or the expansion fund. The director shall make one of the determinations specified in subdivision (c) within 30 days of the effective date of the temporary withdrawal unless the corporation and the director mutually agree to an extension. The corporation shall have the opportunity to submit written material to the director addressing the items stated in the temporary withdrawal notice. If the director does not make any determinations within 30 days, the temporary withdrawal shall be negated. The corporation s yearly contract shall remain in effect during the period of temporary withdrawal, and the corporation shall continue to receive reimbursement of necessary operating expenses.

(b) Failure of a corporation to substantially comply with the following may result in the suspension of a corporation:

(1) Regulations implementing the Small Business Development Corporation Law.

(2) The plan of operation specified in subdivision (d) of Section 14025.

(3) Fiscal and portfolio requirements, as contained in the fiscal and portfolio audits specified in Section 14027.

(4) Milestones and scope of work as contained in the annual contract between the corporation and the agency.

(c) Pursuant to subdivision (a) or (b), the director may do the following:

(1) Terminate the temporary withdrawal.

(2) Terminate the temporary withdrawal subject to the corporation s adoption of a specified remedial action plan.

(3) Temporarily withdraw, or continue to withdraw, guarantee authority until a specified time. This determination by the director requires a finding that the corporation has failed to comply with the Small Business Development Corporation Law.

(4) Suspend the corporation.

(5) Suspend the corporation, with suspension stayed until the corporation provides a remedial action plan to the director, and the director decides whether to repeal or implement the stayed suspension.

The determinations contained in paragraphs (4) and (5) require a finding that irreparable harm will occur unless the corporation is suspended.

(d) In considering a determination regarding the recommended suspension and possible remedial action plans, the director shall consider, along with other criteria as specified in subdivision (b), the corporation s history and past performance.

(e) Upon suspension of a corporation, the director shall transfer all funds, whether encumbered or not, in the trust fund account of the suspended corporation into either the expansion fund or temporarily transfer the funds to another corporation.

(f) If the director decides to take any action against the corporation pursuant to paragraphs (2) to (5), inclusive, of subdivision (c), the corporation shall be notified of the action 10 days before the effective date of the action. The corporation shall have the right to appeal the director s decision to the board within that 10-day period by sending notice to the director and to the chair of the board. Once the director receives notice that the action is being appealed, the director s action shall be stayed except for temporary withdrawal of guarantee authority. Upon receipt of the notice, the director shall schedule a properly noticed board meeting within 30 days. The board may elect to take any of the actions listed in subdivision (g). The temporary withdrawal of corporation guarantee authority shall remain in effect until the board issues its decision.

(g) Pursuant to subdivision (f), the board may do any of the following:

(1) Terminate the action taken by the director.

(2) Modify the action taken by the director subject to the adoption by the corporation of a specified remedial action plan.

(3) Affirm the action taken by the director.

(h) Following suspension, the corporation may continue its existence as a nonprofit corporation pursuant to the Nonprofit Public Benefit Corporation Law (Part 2 (commencing with Section 5110) of Division 2) but shall no longer be registered with the Secretary of State as a small business development corporation. A corporation shall not enjoy any of the benefits of a small business development corporation following suspension.

(i) The funds in the trust fund account of a corporation under temporary withdrawal shall be transferred to the expansion fund. Upon termination of the temporary withdrawal, unless the termination is caused by suspension, the funds of the corporation that were transferred to the expansion fund from the trust fund account shall be returned to the corporation s trust fund account, notwithstanding Section 14037. While the funds of a corporation s trust fund account reside in the expansion fund, use of the principal on the funds shall be governed by the implementing regulations specifying use of funds in the expansion fund. Interest on the funds moved from a corporation s trust fund account upon temporary withdrawal shall be limited to payment of the corporation s administrative expenses, as contained in the contract between the corporation and the agency.

(Amended by Stats. 2004, Ch. 143, Sec. 4. Effective July 14, 2004.)