Contracts with Directors - Conflict of Interest

House Bill 2381 will become effective on August 25, 2004. It will add a new subsection (c) to A.R.S.§ 33- 1242 [Arizona Condominium Act] and a new section 33-1811 to the planned community statutes. The new rules on conflicts of interest are as follows: 

 

 

Once the conflict of interest is declared, the Board member with the conflict of interest can vote on the issue. The new statutory provisions are in significant conflict with the Arizona Nonprofit Corporation Act. A.R.S.§§ 10-3860 through 10-3864 imposes strict requirements on directors who contemplate “conflicting interest transactions.” For example, A.R.S.§ 10-3862(B)(2) prohibits a director who has a “conflicting interest” with respect to a proposed transaction from participating in the discussions of the matter or voting on the matter. In addition, A.R.S.§ 10-3830, a portion of the Arizona Nonprofit Corporation Act, requires that directors act in “good faith” and with the “care an ordinarily prudent person in a like position would exercise under similar circumstances.” Therefore, directors who vote on “conflicting interest” transactions in violation of the Arizona Nonprofit Act will do so at significant risk. All directors who are involved in potential conflicting interest transactions would be prudent to recuse themselves from all discussions and votes on any issue that is a conflict of interest, despite the language in HB2381.