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June 02. 2013 9:57PM

Local Government Center's LLCs developed over years

CONCORD — The New Hampshire Local Government Center is attempting to undo a process that ultimately saw much of its operations and assets handled by LLCs that, according to the New Hampshire Secretary of State's Office, are for-profit entities.
Here is a timeline of how the entities got formed:

• Prior to June 26, 2003: All of LGC's operations were under separate, not-for-profit corporations, including HealthTrust Inc. and Property-Liability Trust Inc.

Bylaws that governed the entities until a 2003 reorganization gave only those board members serving at the time the authority over the entities' finances.

• April 2003: According to meeting minutes of the HealthTrust and Property-Liability Trust boards of directors, the boards authorized a reorganization that brought all of the operations under the umbrella of the Local Government Center. The boards also authorized the creation of the HealthTrust and Property-Liability Trust LLCs, but no mention is made of transferring assets from either Property-Liability Trust or HealthTrust into the new entities. And none of the resolutions adopted at those meetings in 2003 makes any mention of asset transfers.

The resolutions say former Executive Director John Andrews or a majority of committee members, "are hereby authorized and directed to execute and deliver any and all documents, certificates or affidavits or take any action that the Committee deems necessary or advisable in order to carry out the transactions authorized by the foregoing resolutions."

• Sometime before June 26, 2003: LGC officials are told by the Secretary of State's Office and the Attorney General's Office that a state law, RSA 292:7, says not-for-profit corporations could not be merged with or acquire LLCs, which in New Hampshire can only be for-profit entities.

• June 26, 2003: Andrews and LGC attorneys ignored the state officials and tried to do the mergers anyway, creating shell LLCs in Delaware, merging the New Hampshire-based not-for-profit corporations into them, then merging the Delaware LLCs into newly created New Hampshire LLCs. It all happened in one day.

• Sometime after that: the various bank accounts' names and corresponding federal tax identification numbers were changed. LGC officials could not produce records of what was presented to bank officers to effect the change.

• 2006: LGC officials, believing that the entities had been dissolved already, allowed HealthTrust Inc. and Property-Liability Inc. to be administratively dissolved by the Secretary of State's Office before the problems with the attempted Delaware merger were brought to light. For five years, the corporations did not exist.

• October 2010: A preliminary report by the Bureau of Securities Regulation, which is overseen by the Secretary of State's Office, raised questions about the use of Delaware LLCs.

Later, the Delaware Secretary of State's Office, in a January 2013 letter to New Hampshire Secretary of State William Gardner, said that "had the Delaware Division of Corporations been advised that the entities in question were New Hampshire entities (governed by the Secretary of State's Office) and were required to maintain a continuous legal existence as New Hampshire entities, the Delaware Division of Corporations would have rejected the initial merger filing of HealthTrust, Inc. and ... Property-Liability Trust, Inc. into the Delaware LLCs."

• To start fixing the problem, LGC had to, in effect, try to go back in time.

• April 2011: At the request of former LGC Executive Director Maura Carroll a bill is introduced in the state House that would have, according to its language, ratified the LLCs and "notwithstanding the use of any transitional Delaware limited liability companies to effectuate these conversions, are hereby deemed to be valid conversions under New Hampshire law and the resulting entities are deemed to have continuously complied with and continue to comply with the requirement of (state law)."

The bill, which would have also greatly diminished the oversight authority of the Secretary of State's Office over LGC, failed.

• August 2011: A final report by the Bureau of Securities Regulation deemed that the use of LLCs was illegal.

• Aug. 31, 2011: According to a letter from Carroll to Gardner, LGC revived the not-for-profit corporations by asking former board members to vote to revive the entities. "This morning, all but one of the remaining members of the Boards of Trustees of HealthTrust, Inc. and Property-Liability Trust, Inc. met and those present voted unanimously to revive the corporations," her letter reads.

• October 2011: the HealthTrust board approves an agreement for a pooled risk management program between LGC HealthTrust Inc., LGC HealthTrust LLC and LGC Inc., and to elect a slate of officers for the newly revived LGC HealthTrust Inc. All of it was retroactive to 2006.

No member of the HealthTrust board from 2003 was at that October 2011 meeting.

Thomas Enright, the current chairman of the LGC Board of Directors, was elected chairman of the new HealthTrust Inc., according to minutes. That same month, Enright and Carroll signed an agreement that retroactively transferred all HealthTrust assets from HealthTrust Inc. to HealthTrust LLC.

"HealthTrust Inc. ratifies and approves the transfer to and use of its assets by HealthTrust LLC, under the direction of the Board of Directors of LGC, in the operation of the pooled risk management program by HealthTrust LLC," the agreement from 2011 reads.

A similar scenario played out for Property-Liability Trust and its assets.

• May 2013: LGC interim Executive Director George Bald and in-house attorney David Frydman present a plan to the LGC Board of Directors to dissolve the LLCs and transfer all assets and liabilities to the revived not-for-profit corporations, with the goal of completing the restructuring by July 1.


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