There are over 90,000 nonprofit organizations in New York that collectively employ 1.25 million people (18 percent of the state’s workforce) and generate more than $260 billion in annual revenues, according to www.independentsector.org. Following the Great Recession, the nonprofit sector faced significant financial headwinds that resulted in increased restructuring and, in some cases, dissolution, of many prominent nonprofits such as Saint Vincent Catholic Medical Centers, the New York City Opera, and The Big Apple Circus. The bankruptcy cases commenced by these organizations over the past several years provide useful guidance when navigating the complex intersection of federal bankruptcy law and New York’s nonprofit laws, especially with respect to the substantive and procedural requirements for asset sales and the transfer of restricted funds.
Statutory Framework
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA) was primarily intended to curtail what some proponents believed was growing abuse of the bankruptcy system. However, BAPCA also made certain “technical corrections” to the Bankruptcy Code that, among other things, addressed the administration of nonprofit bankruptcy cases. Specifically, provisions were added to sections 363, 541, and 1129 of the Bankruptcy Code to make clear that the transfer of a nonprofit’s assets in bankruptcy must comply with applicable state nonprofit laws. In New York, such laws include the Not-For-Profit Corporation Law (N-PCL) enacted in 1970 and amended in 2013 and 2016.
