Esta ley, conocida como la "Ley de Asociaciones Cooperativas de Ahorro y Crédito de 2002", establece el marco legal para la organización, operación y supervisión de las cooperativas de ahorro y crédito en Puerto Rico. Define sus propósitos, poderes autorizados (incluyendo la concesión de préstamos y servicios financieros), requisitos de membresía, estructura de gobierno (asambleas, juntas directivas y comités), capital operativo, provisiones para pérdidas, exenciones contributivas y procedimientos para fusiones, disoluciones y liquidaciones. También aborda prohibiciones, penalidades y deberes fiduciarios de los miembros de las juntas y empleados. La ley deroga la "Ley de Cooperativas de Ahorro y Crédito de 1989" y busca modernizar la legislación para permitir una mayor competitividad de estas instituciones financieras dentro de un marco de prudencia administrativa y financiera.
(Approved October 28, 2002)
To adopt a new "Cooperative Savings and Credit Unions Act of 2002"; and repeal Act No. 6 of January 15, 1990, as amended, known as the "Cooperative Savings and Credit Union Act of 1989."
A cooperative is an autonomous association of persons who have joined together of their own free will to attend to their common economic, social and cultural needs and hopes through a jointly owned and democratically controlled enterprise. Cooperatives are based on the values of mutual assistance, responsibility, democracy, equality, equity and solidarity. Following the tradition of their founders, their members believe in the ethical values of honesty, straightforwardness, social reliability and concern for others. Cooperatives are governed by seven basic internationally recognized principles, as adopted by the International Cooperative Alliance. The most recent version of these principles was adopted on September 22, 1995, in Manchester, as follows:
public, specifically to youths and decision-makers, on the nature and benefits of the cooperative movement. 6. Collaboration between cooperatives - Cooperatives serve their members more effectively and strengthen the cooperative movement by working together through local, regional, national and international structures. 7. Commitment to the community - Cooperatives work for the sustainable development of their communities through policies accepted by the members.
It is the public policy of the Commonwealth to direct the social and economic development of Puerto Rico by protecting the principles of social justice, self-help and democratic control of the cooperative movement.
Therefore, the Cooperative Movement is an integral part and pillar of strength of the economic and social development of the country, therefore, the growth and bolstering of the cooperative movement in Puerto Rico is vested with high public interest. In spite of this importance, the legislation, regulation and control of the past years, has been characterized by the imposition of restrictions that have limited the progress of this sector that can contribute so greatly to the economy of Puerto Rico.
Through this measure, and so that the savings and credit cooperatives may have the opportunity to be more competitive entities and become leaders in the economic development of the country, the Commonwealth of Puerto Rico promotes a broad and full participation of these cooperatives in the financial service markets. Likewise, we endorse the application of the cooperative philosophy and principles. Thus, this Legislature declares the following as its express intention:
This Act provides the savings and credit cooperatives sector with state-of-the-art legislation that hears the clamor for operating flexibility and competitive equality of this important sector, within a framework of administrative and financial prudence, to propitiate the orderly development
and growth of these important financial institutions in our communities and towns.
Section 1.01- Title of the Act This Act shall be known as the "Cooperative Savings and Credit Associations Act of 2002."
Section 1.02- Statement of Public Policy It is the public policy of the Commonwealth of Puerto Rico to expedite and promote the growth and strengthening of savings and credit cooperatives organized under this Act; propitiate extensive and widespread participation in the financial services markets, and encourage the furthering of the cooperative philosophy and principles. Provided, that the Commonwealth of Puerto Rico and its dependencies shall execute the implementation, application and interpretation of this Act, pursuant to, and for the purpose of advancing this public policy.
Section 1.03- Definitions For the purposes of this Act, the following terms shall have the meaning stated below:
(a) "Shares" means the financial contribution made by each member of a credit union to the capital or net worth of the cooperative enterprise.
(b) "Preferred stock" means those shares issued by every cooperative pursuant to the provisions of Section 2.07(A) of this Act.
(c) "Agency" means any department, office, administration, bureau, board, commission, instrumentality, public corporation, dependency or political subdivision of the Commonwealth of Puerto Rico,
including its municipalities, or of the Government of the United States of America.
(d) "Cooperative Bank" means the Cooperative Bank of Puerto Rico created by Act No. 88 of June 21, 1966, as amended.
(e) "Indivisible Capital" means the regulatory capital as required under Section 6.02 of this Act.
(f) "Capital Stock" means the sum of all shares acquired by the members of the cooperative, the indivisible capital reserve, any other reserve required by law or regulations, the other voluntary reserves duly adopted by the cooperative, and the withheld and undistributed net savings.
(g) "Committee" means any committee designated or elected in a cooperative.
(h) "Cooperative" means any first or second-degree savings and credit cooperative association constituted and organized pursuant to this Act. Those cooperatives whose members are cooperative entities shall be considered as second-degree cooperatives.
(i) "Closed Cooperatives" means every first degree savings and credit cooperative whose partners are limited to a specific firm or group, excluding other groups.
(j) "Ensured Cooperative" means every cooperative covered by the shares and deposits insurance provided by the Corporation.
(k) "Adequate Condition Cooperative" means a savings and credit cooperative that has an adequate financial and management condition to be determined according to objective and uniform parameters to be defined by the Corporation through regulations.
(1) "Corporation" means the Public Corporation for the Supervision and Insurance of the Savings and Credit Cooperatives, created by virtue of Act No. 114 of August 17, 2001, hereinafter "the Corporation."
(m) "Governing Board" means the Board of Directors, Credit Committee, Supervision Committee, Education Committee, any committee that performs functions delegated by the Board of Directors, and any permanent elected body duly instituted by law, regulations, or by general cooperative regulations.
(n) "Depositor" means any person who, even if not a member of a cooperative, has deposits therein.
(o) "Deposits" means all the assets, except shares, owned by a member or depositor in a savings and credit cooperative held by a member or depositor, that are evidenced by saving accounts, certificates of deposit, checking accounts, Christmas funds, individual retirement accounts, trust accounts, or any other account or financial instrument of a like or similar nature, as determined by administrative decision or by regulations issued by the Corporation.
(p) "Executive Officer" means any person who, by virtue of an appointment or a fixed term, indefinite or temporary work contract through the payment of a salary, compensation or remuneration, holds a position of trust in a cooperative, including that of Executive President, Manager, Auditor, or Controller.
(q) "Financial Institutions" means those financial institutions as defined in Section 4(g) of Act No. 4 of October 11, 1985, as amended.
(r) "CAEL Indicators" is the financial analysis system adopted by the Corporation pursuant to Regulation No. 5231 of May 8, 1995, as said analysis system is amended from time to time, without including the
indicator related to management identified with the letter "M" (Management).
(s) "Board" means the Board of Directors of every cooperative duly constituted pursuant to the provisions of this Act.
(t) "Main Office" means the central or main establishment in which the offices of the Board of Directors, the Executive President, and other executive officials determined by the Board of Directors, are located.
(u) "Service Offices" means those fixed or mobile establishments other than branches, in which the cooperatives render services, including Automatic Teller Machines or similar electronic devices.
(v) "Person" means any natural or juridical person organized or authorized to do business under the laws of Puerto Rico.
(w) "Executive President" means the main executive official of the cooperative designated by the Board of Directors pursuant to the provisions of Sections 5.10 and 5.11 of this Act.
(x) "Partner" means every person who is admitted as a member of a cooperative pursuant to this Act and the general regulations of said cooperative. Provided, that no profit-seeking legal or juridical persons shall be admitted as partners.
(y) "Branches" means the fixed or mobile establishments in which the cooperative simultaneously renders direct services of opening accounts and disbursing of loans to its partners and clients.
(z) "Family Unit" means the spouse of a member of the Board of Directors or of an employee of the cooperative; and the members of their families up to a fourth degree of consanguinity or second degree of affinity, and those persons who share their legal residence with them, or whose financial affairs are under their legal control.
Savings and credit cooperatives have as their primary purpose, to promote, through the cooperative movement, full access to financial services, to act as regulator of prices, educate their members on the best management of their personal and family finances, promote gainful activity through selfemployment, self-enterprise and the support of small enterprises, and the development of leaders to for the promotion of the cooperative movement and of the communities. In order to achieve these purposes, cooperatives must:
(a) promote the development and support of the cooperative movement and divulge its philosophy through educational programs;
(b) encourage the habit of saving and the prudent use of credit in the people, by providing education on personal and family budgets, handling of personal finances, prevention of bankruptcy, and others;
(c) develop educational programs addressed toward the technical training and development of volunteer leaders, professional leaders, and employees of cooperatives;
(d) offer financial services to any person, whether or not they are members of the cooperative, under the most favorable terms and conditions within the conditions of the market;
(e) extend their capacity to serve in order to become the center of financial services for Puerto Rican families; and
(f) encourage the establishment and operation of other cooperative enterprises, especially those that propitiate employment and agricultural, industrial, and livestock production, and those related to consumerism, housing and transportation.
Section 2.02 - Loans and Financial Services to Members Every cooperative shall have the power to grant loans and offer their members the financial services listed below:
(a) Accept, receive and manage all types of deposits by persons and private and public entities, and offer all such depositary services that are allowed to the depositary financial institutions, including: (1) savings accounts, checks, deposit certificates and other instruments, all of which, with or without interest; (2) facilities or services for electronic transfer of funds, and other electronic banking services, including debit cards and any other electronic payment means; and the (3) receipt and management of deposits and individual retirement accounts (IRA) and other trust funds, in special accounts or for the payment of services.
(b) Grant financing of all types subject to the policies in Section 6.03 of this Act, including: (1) personal loans and lines of credit with or without collateral; (2) loans for the acquisition of new or used motor vehicles; (3) loans for the acquisition of chattels with or without chattel mortgages; (4) mortgage loans of all types; (5) student loans that may be secured by any agency of the Government of the Commonwealth of Puerto Rico or of the Government of the United States; (6) loans in the form of credit card services for the purchase of goods, payment of services, and for the granting of limited cash credit;
(7) loans for the financing of insurance premiums and policies; (8) collateralized commercial loans, subject to the adoption and effectiveness of credit evaluation policies and procedures specifically adopted for commercial financing, implemented through commercial credit officials duly trained for said function; and (9) financing of chattel leasing contracts subject to applicable legal provisions.
(c) As authorized by the Corporation through regulations or administrative determination, cooperatives of adequate condition may render all other services not covered in subsections
(a) and
(b) of this Section, that are permitted to other financial institutions and their subsidiaries. When evaluating any petition for authorization, as well as upon adopting regulations under this subsection, the Corporation shall guarantee equitable and competitive participation of the cooperatives in the markets of the respective services in question and may require, through regulations, the designation or contracting of specialized, resources, duly trained in rendering the services in question. The Corporation may require that the authorized services be rendered in a segregated manner through subsidiaries if it is required of other depositary institutions by applicable laws or regulations.
Section 2.03- Loans and Financial Services to Non-members
(a) Every cooperative may offer the following products and services to persons who are not members: (1) personal loans up to the maximum amount and under the terms and conditions allowed pursuant to Act No. 106 of June 28,
1965, as amended, known as the "Small Personal Loans Companies Act"; and (2) all financial services available to members as provided in Section 2.02 of this Act, provided that the loans that are offered do not exceed the sum of those liquid assets that the debtor maintains in the cooperative or that secure one hundred percent (100%) of the loan. For the purposes of this Section, the following are deemed to be liquid assets, provided they are subject to a duly constituted lien and validated in favor of the cooperative:
(i) assets of members that are not committed with loans granted by the cooperative; (ii) deposit or negotiable securities accounts that are kept in financial institutions authorized to operate in Puerto Rico; and (iii) insurance policies or unearned premiums of insurance policies issued by insurance companies authorized to do business in Puerto Rico, whose premiums secure the unpaid balance of the loan.
(b) The cooperative may adopt different interest structures, charges and prices for members and non-members.
Section 2.04- Authorization to Perform Other Financial Activities In addition to the financial services and activities authorized in Sections 2.02 and 2.03 of this Act, cooperatives may perform other financial activities that are described below, subject to the limits and conditions that are established by the Cooperative through regulations or administrative
decisions, which ensure the equitable and competitive participation of cooperatives in the respective financial services market in question, such as:
(a) place deposits in other cooperatives, in the Cooperative Bank of Puerto Rico, created by Act No. 88 of June 21, 1966, as amended, and in commercial and savings banks doing business in Puerto Rico pursuant to applicable legislation;
(b) acquire shares and other securities and deposits of cooperative societies and second and third degree cooperative bodies organized pursuant to the laws of Puerto Rico, including insurance cooperatives, the Cooperative Bank and subsidiaries or affiliated entities of the abovementioned entities;
(c) grant loans, subject to the applicable requirements of Section 9.02 of this Act, to other cooperative bodies organized under the laws of Puerto Rico, to any juridical person, association, society, foundation, institution, company or group of persons special corporations of workers organized under the laws of Puerto Rico, whether or not they are partners of the cooperative;
(d) short or long term borrowing of money from any person, entity or public or private agency, provided that the loan does not exceed twenty-five percent ( $25 %$ ) of the capital stock of the cooperative, after subtracting any accrued loss. These requirements do not apply to the deposit of public funds, which shall be governed by the applicable special regulations. Regardless of the above provisions, and upon justification to such effects, the Corporation may authorize that the total loan can exceed the above limits. In the cases that it is necessary to pledge corporate assets to obtain such loans and the market price of the assets to be offered as security exceed one
hundred and twenty percent (120%) of the total amount of the loan, the cooperative must obtain the prior written consent of the Corporation. When assets are pledged without said consent, and the cooperative incurs problems of insolvency that require action under Act No. 114 of August 17, 2001, the Corporation shall have the prerogative, at its full discretion, to rescind said transaction;
(e) extend, accept, endorse, discount, execute and issue promissory notes, bills of exchange, certificates of deposit and other transferable or negotiable commercial instruments;
(f) sell and purchase money orders, traveler's checks, receiving securities on deposit, administering loans and performing all types of collections and payments on behalf of others, buying and selling postage stamps, internal revenue stamps, pre-paid telephone cards and other similar goods and services;
(g) sell and buy bonds, securities, and other evidence of indebtedness of the Government of the Commonwealth of Puerto Rico, the Government of the United States of America, and the States of the United States, as well as of their agencies, corporations, instrumentalities, authorities and political subdivisions, that are not overdrawn. When investing in such instruments under equal conditions with regard to yield, priority shall be given to those of the Government of the Commonwealth of Puerto Rico, and its agencies. Likewise, when dealing with bonds, stock or evidence of indebtedness from other states of the United States, the stock to be acquired must be rated among the two (2) highest categories by an internationally recognized financial rating firm;
(h) establish or affiliate to one or more institutions, associations, corporations or networks of financial entities or institutions related to the rendering of financial services and any other needs in common of the cooperatives, including networks or associations for the electronic transfer of funds, systems of payment, and clearing houses, among others whose operations could be limited to the Commonwealth of Puerto Rico or to be extended to or originated in any foreign location;
(i) operate a trust department with the authorization of the Corporation,
(j) acquire and hold common stock and obligations issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association, the Student Loans Marketing Association, or by the Federal Land Bank, the Federal Intermediate Credit Bank and the Cooperatives Bank, organized and authorized to do business in the Commonwealth of Puerto Rico, pursuant to the Acts of the United States Congress;
(k) barter, encumber, acquire or assign in lease the real estate assets needed to execute the goals and purposes for which the cooperative is organized, subject to the limitations of the applicable laws and regulations;
(l) act, subject to the applicable regulations, as depositaries of public funds of any nature, for which the agencies shall accept as collateral the loans granted to its members that are not in arrears for more than sixty (60) days and whose unpaid balance is kept at least at one hundred and twenty-five percent (125%) of the deposit;
(m) engage in the sale, soliciting, offering or marketing of insurance products in Puerto Rico, under any of the following structures: (1) Acting directly, on their own, as agents for cooperative insurers licensed under Act No. 77 of June 19, 1957, as amended, known as the Insurance Code, from whom they hold certificates of contribution of funds. For these purposes, the cooperative shall be exempted from the requirements and restrictions provided in Section 9.080 and subsections (1), (4), and (5) of Section 9.160 of Act No. 77 of June 19, 1957, as amended, known as the Insurance Code of Puerto Rico. (2) Through subsidiaries, affiliates or cooperative enterprises as described in Section 2.06 of this Act, for the sale, soliciting, offering or marketing of insurance products of cooperative insurers authorized pursuant to Act No. 77 of June 19. 1957, as amended, known as the Insurance Code of Puerto Rico, that hold certificates of contributions of funds, without it being necessary to qualify as a financing holding company. (3) The insurance activities of cooperatives authorized in this subsection shall be subject to the special regulations that the Commissioner of Insurance and the Corporation shall adopt jointly, whose regulations shall ensure an equitable and competitive share of the cooperatives in their function of the sale of insurance by the depositary entities, and shall comply with the objective of certain entities supporting others;
(n) perform such financial activities or services that are necessary or convenient to strengthen their competitive position as a financial intermediary that operates in an environment of regulatory liberality;
(o) act as sole incorporator of subsidiary or affiliate entities pursuant to any statutory provisions that permit the organization of juridical entities under the laws of Puerto Rico;
(p) execute all the acts and operations that are needed to perform the activities for which the cooperative is organized and incorporated, subject to the limitations established in this Act and the regulations adopted by virtue thereof, as well as in Act No. 114 of August 17, 2001 and its regulations; and
(q) perform any other activities that the Corporation determines administratively or through regulations, that are incidental to the operations of the cooperative or that are pertinent to the type of other financial institutions or cooperative entities.
Section 2.05- Authorization to Establish Branches and Service Offices
(a) Branches - Cooperatives may establish branches in mobile units or permanent establishments, provided they fulfill the provisions and procedures of this Act and its regulations and, in every case, with the prior approval of the Corporation. Every cooperative that wishes to obtain an authorization to establish a branch, whether mobile or permanent, shall file an application with the Corporation in which it shall state the exact address of the place where the branch is to be located or where the mobile branches are to be operated.
(b) Service Offices - An adequate cooperative may establish service offices, provided it notifies the Corporation of the establishment thereof. The establishing of a service office shall be deemed to be approved if the Corporation does not file an objection within thirty (30) calendar days from the date the notice of the cooperative is received. The objection by the Corporation shall expressly indicate
its specific grounds, in which case the process to establish the service office shall be detained until the objection is withdrawn. The cooperatives that are not adequate, may establish service offices subject to the prior approval of the Corporation.
(c) Relocation of Branches and Service Offices - An adequate cooperative may relocate its branches and service offices, provided the Corporation is notified of said transfers. The transfer shall be considered as approved if the Corporation does not file an objection within thirty (30) calendar days following receipt of the notice. The objection by the Corporation must expressly indicate its specific grounds, in which case, the relocation process shall be detained until the objection is withdrawn. Cooperatives that are not adequate may locate their branches and service offices subject to the prior approval of the Corporation.
(d) Every notification and every application for prior approval required under this Section shall be submitted in writing and signed by an official authorized for such matters, and shall contain such information that the Corporation shall provide by regulations. The Corporation shall adopt objective parameters for the evaluation of the applications through regulations.
Section 2.06- Investment in Subsidiaries, Affiliates and Cooperative Enterprises
(a) Wholly owned (100%) Subsidiaries. - Cooperatives may perform any of the activities that they are directly allowed, or through subsidiaries that are one hundred percent ( $100 %$ ) owned and controlled by the cooperative. Said subsidiaries may organize under any of the statutory provisions that allow the organization of juridical entities
under the laws of Puerto Rico, including this Act, Act No. 50 of August 4, 1994, as amended, known as the "General Cooperative Associations Act of Puerto Rico," Act No. 144 of August 10, 1995, as amended, known as the "General Corporations Act of 1995," Act No. 106 of June 28, 1965, as amended, and the provisions of the Civil Code of Puerto Rico of 1930, as amended, regarding partnerships and trusts, and under the provisions of successor acts of the abovementioned statutes. Regardless of the provisions of Act No. 50 of August 4, 1994, as amended, for the purpose of the creation of subsidiary entities, the appearance of the cooperative or its authorized representative shall be sufficient, without requiring multiple incorporators.
An adequate cooperative may establish the subsidiaries subject to having notified the Corporation of the establishment thereof. The establishment of a wholly owned (100%) subsidiary, shall be deemed as approved if the Corporation does not present an objection within thirty (30) calendar days following the date the notice of the cooperative is received. The objection by the Corporation must make express indication of the specific grounds thereof, in which case the procedure for the establishing of the subsidiary shall be detained until the objection is withdrawn. The cooperatives that are not adequate may establish subsidiaries subject to the prior approval of the Corporation. Every notice required under this Article shall be submitted in writing and signed by an official authorized to conduct such transactions and shall contain such information that the Corporation requires by regulations.
The operations of the subsidiaries shall be subject to external auditing by a certified public accountant. With regard to the subsidiary, the Corporation shall have all the powers it possesses pursuant to this Act, Act No. 114 of August 17, 2001, and any special laws that are applicable to it.
(b) Investment in second degree financing enterprises.- Two (2) or more cooperatives may establish, organize and invest in institutions or entities engaged in offering financial or administrative services to cooperative entities or other persons. Said entities may be organized under any of the statutory provisions that permit the organization of statutory entities pursuant to the Laws of Puerto Rico, including this Act, Act No. 50 of August 4, 1994, as amended, known as the "General Cooperative Associations Act of Puerto Rico," Act No. 144 of August 10, 1995, as amended, known as the "General Cooperative Savings Act," Act No. 106 of June 28, 1965, as amended, and the provisions of the Civil Code of Puerto Rico of 1930, as amended, concerning associations and trusts, and pursuant to the provisions of subsequent acts of the abovementioned statutes. Regardless of the provisions of Act No. 50 of August 4, 1994, as amended, the appearance of the cooperative or its authorized representative shall be sufficient for the purpose of creating subsidiary enterprises, without requiring the presence of multiple incorporators.
The establishing and investment in second degree financial enterprises shall be performed according to the standards adopted by the Corporation, which shall take into consideration among other matters:
(1) authorization and recognition of permissible administrative activities which shall include the activities permitted to other financial institutions and their subsidiaries; (2) maximum investment in financial enterprises; (3) participation of directors and executive officials of savings and loan cooperatives on the boards of directors and management of the financial enterprise; (4) internal controls and standards of ethics to avoid conflicts of interest; and (5) controls and restrictions, if any, of the transactions between affiliated enterprises.
The operations of the financial enterprises shall be subject to external auditing by a certified public accountant. With regard to these enterprises, the Corporation shall have all the powers it possesses pursuant to this Act, Act No. 114 of August 17, 2001, and any other special laws that apply to it.
(c) Investment in non-financial cooperative enterprises. - Cooperatives may sponsor, promote, furnish financing, invest and participate as members or preferred stockholders that provide multiple services in cooperative enterprises engaged in commercial, industrial, agricultural activities, or that otherwise contribute to the creation of jobs, to encourage production or the development or integration of the Cooperative Movement. The Corporation shall adopt through regulations, the specific standards that shall govern the investments by cooperatives in cooperative enterprises, including: (1) total maximum investment in cooperative enterprises; (2) maximum investment, for each cooperative enterprise;
(3) maximum proportion of the shares of the cooperative enterprise; (4) areas of the economy for the development of cooperative enterprises; (5) participation of directors and executive officials of the savings and loan cooperatives in the boards of directors and management of the cooperative enterprise; (6) internal controls and standards of ethics to avoid conflicts of interest; (7) controls and restrictions of transactions between affiliated enterprises, and (8) process of authorizing, organizing or investing in nonfinancial cooperative enterprises.
The regulations of the Corporation shall have the purpose of enabling the investments of the savings and loan sector in the development of diverse types of cooperative enterprises within a framework of financial prudence and sound management.
Non-financial departments converted to subsidiaries pursuant to Act No. 172 of August 12, 2000, shall be treated as nonfinancial cooperative enterprises authorized under this Act. With regard to these subsidiaries, a reduction of its assets or its operations shall not be required by virtue of limitations adopted by new regulations, with regard to the total amount of allowable investment in non-financial cooperatives, and subsequent increases in investments by the parent cooperative, in the event that the original investment of the parameters adopted by regulations is exceeded.
(d) Tax exemptions. - Wholly owned (100%) subsidiaries, second degree financial enterprises and non-financial cooperatives shall enjoy the same tax exemptions that are granted by Section 6.08 of this Act.
(e) Cooperatives that establish wholly-owned (100%) subsidiaries, second degree financial enterprises or non-financial cooperatives, shall adopt reasonable policies and procedures that preserve the separate corporate identity of these entities and the limitation of the financial accountability of the parent company. Provided, that the wholly-owned (100%) subsidiaries, the second degree financial enterprises or non-financial cooperative enterprises may use the initials "COOP" in their official or business names.
Section 2.07- Authorization to Issue Preferred Stock and Capital Liabilities
(a) Preferred Stock (1) Subject to the approval of the Corporation, every cooperative may issue one or more classes of preferred stock, or one or more series of stock in any of the classes. The total preferred stock shall never exceed the total common stock issued and outstanding. Any of them may be of stock with or without par value, and in such series and denominations and with the preferences and relative rights of financial interest, of option or other special, conditional, limited or restricted rights that are declared and stated in the resolution that provides for the issuing of the stock approved by the Board of Directors. With the exception of said rights, the holding of preferred stock shall not grant voting rights, participation in assemblies, the right to be
elected or to be designated to the boards of directors of the cooperative. (2) Any preferred stock may be redeemable in their terms and at the prices, and may be issued with the denominations, preferences and relative rights, of financial participation, options, or other special rights, and their conditions, limitations or restrictions that are consigned in the resolution that provides for the issuing of this stock and is approved by the Board of Directors with the authorization of the Corporation. (3) The holders of preferred stock of any class or series shall be entitled to dividends at the rate and under the terms and conditions sated in the resolution that provides for the issue of these shares and is approved by the Board of Directors with the authorization of the Corporation. These dividends shall be payable with preference over, or prior to the dividends payable in any other class of stock, and shall be cumulative or not, as stated. When dividends have been paid on the preferred stock pursuant to the terms and conditions said stock is entitled to, or when the dividends have been declared and set aside for payment, dividends may be paid on the remaining classes of stock charged to the remainder of the assets that the cooperative has available for the payment of dividends. The dividends and interest earned by the persons that acquire or hold any class of stock issued by a cooperative shall be exempt from the payment of the income tax established in Act No. 120 of October 31, 1994, as amended, known as the "Puerto Rico Internal Revenue Code of 1994," and from all classes of movable property taxes.
(4) Preferred stock shall not be insured by the Corporation, which fact shall be stated clearly in the offering, in every contract, and in any other documents that evidence the preferred stock. At any time the payment of this stock shall be subordinated to the payment of all the obligations and liabilities of the cooperative and the capital obligations. The denominations, preferences and relative rights, of financial shares, options and other special rights of each class or series, with the conditions, limitations or restrictions of such preferences or rights, or both, shall be fully consigned or summarized on the face or reverse of the certificate issued by the cooperative to represent said classes or series of stock. (5) The power of a cooperative to issue preferred stock shall be previously consented to by the corresponding general assembly of members or delegates, through express authorization consigned in the general regulations. Once the authorization is granted, and while it is in force, the Board of Directors shall have the right to define the terms and conditions under which the preferred stock shall be issued and offered without need of subsequent approval by the assembly. (6) The Corporation is empowered to define by regulations the standards corresponding to the approval of the preferred stock issue by the cooperative. Preferred stock issued pursuant to regulations shall be deemed as part of the total capital of the cooperative.
(b) Capital Liabilities
Any cooperative may issue capital liabilities, upon prior approval of the Corporation. Capital liabilities are deemed to be part of the capital of the cooperative, pursuant to the regulations adopted to such effects by the Corporation. Said capital liabilities shall not have a maturity of less than five (5) years and shall be legally subordinated to the obligations with the depositors and with the other creditors of the issuing cooperative. The Corporation may require the Board of Directors to suspend the payment of principal and interest of the capital obligations on their maturity, or before their maturity, when said payment reduces the amount of capital in shares, the reserve fund and capital obligations, or when, in its judgment, said payment could affect the financial solvency of the cooperative, or endanger the interests of the depositors and of the public in general. Capital obligations may be collateral and redeemable pursuant to the terms and conditions approved by the Corporation. No cooperative may acquire its own obligations or the capital obligations issued by other cooperatives for their investment portfolio.
Capital obligations shall be deemed to be part of the capital, but shall be presented and designated separately in all the general balance sheets. Such obligations shall not be insured by the Corporation, which shall be clearly stated in the tender, in every contract, and any other documents that evidence such obligations. The dividends and interest that are earned by the persons who acquire or possess capital obligations of any kind issued by a cooperative, shall be exempt from the payment of the income tax established in Act No. 120 of October 31, 1994, as amended, known as the "Puerto Rico Internal Revenue Code of 1994," and of any type of movable property taxes.
Section 2.08 - Rules Regarding Real Assets
Every cooperative may buy, hold and receive any real assets in conveyance, exclusively for the following purposes:
(a) those that are necessary and convenient to execute its business and operations, including the establishing of branches, service offices and others, and may lease any space, equipped or not, to others, that is within the same structure. For the purposes of this Section, investment in movable property includes the cost of acquisition, construction, rehabilitation and improvement of real property of the cooperative and all capitalized expenses related thereto.
Cooperatives shall need the authorization in advance of the Corporation to be able to invest in real property when the investment exceeds twenty-five percent ( $25 %$ ) of the total capital of the cooperative, after subtracting any accrued loss. Before granting this authorization, the Corporation shall analyze the impact that the investment may have on the liquidity and operational results of the cooperative, using objective and uniform parameters for it that shall be established through regulations;
(b) those that are transferred to them in payment of debts for personal or mortgage loans granted in the course of their operations;
(c) those that are acquired in foreclosure sales by decrees or mortgages in favor of the cooperative or given as security to guarantee the amounts owed; and
(d) in compliance of its social function, and subject to the twenty-five percent( $25 %$ ) limitation provided in subsection
(a) of this Section, those movable goods that have a historic, cultural, or ecologic value, provided they meet the following requirements:
(1) the cultural, historical or ecologic value that is certified by the pertinent agency of the Commonwealth of Puerto Rico or the Federal government of the United States, such as the Institute of Puerto Rican Culture, the Department of Natural and Environmental Resources or the Department of the Interior; (2) the cooperative is a cooperative of adequate condition and not subject to memoranda of understanding, operating agreements, or duly issued administrative orders; (3) the undividable capital reserve of the cooperative has achieved eight percent (8%) of the total risk assets; (4) the costs of acquisition, operation, restoration and maintenance of the property shall not generate a base increment of fifty points (0.50) or more in the non-rounded 'CAEL' (financial analysis indicator) of the cooperative; (5) the proposed transaction does not exceed the fair market value based on an appraisal issued by an appraiser who holds a license issued by the Puerto Rico Board of Examiners of Professional Real Estate Appraisers pursuant to Section 9 of Act No. 277 of July 31, 1974, as amended, and that meets the requirements of the Appraiser Qualifications Board of the Appraisal Foundation, or holds a license or certification that meets the requirements of Title IX of the Financial Institutions Reform Recovery and Enforcement Act of 1989" (FIRREA); and (6) the proposed transaction has the approval of the general assembly of members or delegates, as the case may be, and of the Corporation.
The cooperatives shall dispose of the real property that is acquired pursuant to subsections
(b) and
(c) of this Section, within a term of not more than five (5) years counting from their date of acquisition or transfer. Said term may be extended when, in the judgment of the Corporation, the best interests of the members, the cooperative and the Corporation itself, so justify it. The cooperative may also withhold said real property acquired under subsections
(b) and
(c) of this Section, if they meet the requirements provided in subsections
(a) and
(d) of this Section.
The Corporation shall order its appraisal and shall proceed to the sale at public auction of said property, when the cooperative does not dispose of it within the term established above, or before the expiration of any deferral, or of the permit to devote it to another authorized activity granted to it. The minimum price of the first auction shall be that of the appraisal ordered by the Corporation. Immediately after the sale, the Corporation shall turn over the net proceeds of the sale to the cooperative, after deducting the expenses incurred.
Section 3.01 - Organization of Savings and Credit Cooperatives Except for the provisions of Section 2.06 of this Act, five (5) or more natural persons, of legal age and residents of the Commonwealth of Puerto Rico, may act as incorporators of a cooperative organized pursuant to this Act. The incorporation process shall be carried out through the signing of a document that contains the incorporation clauses and the general regulations, both of which agree with the provisions of this Act, Act No. 114 of August 17,
2001, and the regulations adopted thereby. Prior to the presentation of documents required above, every group that desires to organize as a cooperative shall receive the advice of the Corporation on the applicable financial and regulatory requirements for the establishment of the new entity, and the guiding principles of the cooperative movement. This guidance shall be offered by Cooperative Development Administration or shall be contracted by the Corporation with the Cooperative League.
The philosophic grounds of the cooperative movement and their application through the organization and operation of savings and credit unions, are a most essential part of the requirements prior to the organization of a cooperative. The financial and regulatory requirements arise from a clear understanding that the cooperative movement is a distinct and peculiar economic activity that is based on principles that are unique to this type of organization.
The organization of a new cooperative entity shall require an affirmative determination of the Corporation to the effect that it is necessary and convenient for the population it shall serve, and shall not unduly affect the existing cooperatives, thus contributing to the orderly and adequate development of the Cooperative Movement in Puerto Rico. The Corporation is hereby empowered to adopt, through regulations, the evidence, documentation and information that shall be required from the proponents, and the criteria that the Corporation shall use to execute the determination required by this Section. Except in the case of entities organized or controlled by cooperatives, at the close of the first six months of existence, every cooperative shall have at least thirty-five (35) members who have no direct family ties within the fourth degree of consanguinity, or second of affinity.
With the exception of the second-degree cooperatives whose shareholders, partners and/or depositors are, exclusively, ensured cooperatives, every cooperative organized pursuant to this Act must subscribe to the insurance offered by the Corporation.
Section 3.02 - Corporate Clauses The document of the Corporate Clauses shall be sworn to by all the incorporators before a Notary Public and shall include the following information:
(a) official name of the cooperative, which shall include the words "Savings and Credit Cooperative" or the initials "Coop" or "SCC." No cooperative shall adopt a name that is similar or alike to that of a previously established cooperative. This provision shall in no way limit the power of the cooperatives to adopt and use commercial names, individually or jointly among themselves, regarding their operations, services or products, or those of their subsidiaries or affiliates, all of which is subject to compliance with applicable laws;
(b) exact address of the place where the main office of the cooperative to be organized shall be established;
(c) objectives or purposes for which it is organized;
(d) par value of the shares, which shall not be less than ten (10) dollars each;
(e) name, address and personal status of the incorporators, as well as the number of shares subscribed by each of them;
(f) number of partners with which the cooperative shall commence operations;
(g) number of shares with which the cooperative shall initiate operations, which shall not be less than fifty thousand $(50,000)$
dollars, with the exception of closed cooperatives in which the number of shares could be less.
Section 3.03. Incorporation Procedures The incorporators of the cooperative shall submit to the Corporation two (2) copies of the document of the incorporation clauses, and an Internal Revenue receipt in the amount that the Corporation shall establish by regulations. They shall also present the original document of the general regulations of the Cooperative, signed by the provisional members of its Board, verified before a Notary Public, and include two (2) plain copies thereof.
The Corporation shall examine and evaluate the incorporation clauses and the general regulations of the Cooperative, to determine if they meet the requirements established in this Act and the Regulations adopted by virtue thereof. Once its compliance with the statutory incorporation requirements has been verified, the Corporation shall submit the incorporation clauses and the Internal Revenue receipt to the Secretary of State for its registration. Likewise, it shall return the original of the General Regulations to the Cooperative, and shall retain a copy of the Incorporation Clauses document and a plain copy of the general regulations, for its files.
The Secretary of State shall issue the certificate of incorporation and the Corporation shall issue the permit to operate the cooperative, once it qualifies and obtains a written certificate to avail itself of the deposits and shares insurance provided by the Corporation.
Section 3.04 - General Regulations The general regulations of every cooperative, pursuant to the cooperative principles and characteristics, shall provide the following, without it being construed as a limitation:
(a) how to convene and hold regular and special assemblies of members;
(b) how to vote and the conditions under which the members may vote in regular and special, general, or district assemblies, according to the cooperative principle of "one person, one vote";
(c) in the event it is organized by districts, the basis for the creation and modification of the districts by the Board of Directors;
(d) the number, qualifications, powers, authority, obligations and terms of office of the directors and other members of the governing boards;
(e) the date, place, and form of constituting the board, and convoking and holding meetings of the directors and the executive committee. Provided, that every government instrumentality including departments, agencies, and public corporations of the Commonwealth of Puerto Rico, shall grant working hours to the members of the boards of directors of the cooperatives organized in said government entities, in order to render an essential service to its employees to attend to their business. The Secretary of he Board of Directors shall certify the names of the employees who are members of the cooperative to the government instrumentality concerned, the meeting days, and their attendance to the respective meetings. The time granted to the employees who are members of the Board of Directors of the cooperative to hold their meetings, shall be at least one (1) hour a week for the members of the credit committee, and three (3) hours a month to the members of the Board of Directors, the Supervision Committee and the Education Committee.
(f) the reasons or instances whereby the Board may remove a member of the cooperative, and the procedure to appeal the decisions of the Board removing a member of the cooperative, including the appeal
before the general assembly of members or delegates, as the case may be;
(g) the causes and the procedure for the dismissal, resignation or substitution of a director or official;
(h) the status as a member; the requirements preceding membership, the manner to determine and pay the member's interest in the cooperative upon his/her death, retirement, separation or other circumstance that causes him/her to cease as a member; the conditions, and dates on which any member shall cease to be a member; and the form and effect of the suspension and expulsion of a member;
(i) the conditions or terms to make withdrawals and transfers of contributions or shares;
(j) the functions and duties that may be delegated to an executive official of the cooperative;
(k) the manner that the net savings of the cooperative may be distributed to the members; (1) the penalties for infractions of the bylaws, and the procedure to file complaints;
(m) the norms on cooperative integration;
(n) the staggered system for the election of Board members, as well as the system for the selection of the committees to comply with the provisions of this Act;
(o) the functions and duties that the members can delegate to the Board of the cooperative;
(p) the application of alternate methods for the solution of disputes according to the ruled adopted by the Corporation; and
(q) the authorization of the Board of Directors to issue preferred stock as allowed by this Act.
Section 3.05 - Organization by Districts Cooperatives may organize by districts, if it is thus provided in their general regulations. In such cases, the general regulations shall provide that the participation of the members shall be directed through duly elected delegates constituted in an assembly of delegates. The general regulations shall also establish the number of delegates to be elected for each district and the directors at large to be elected to the Board of Directors in representation of the assembly of delegates. The Corporation shall be advised of the way that the districts shall be constituted.
Section 3.06 - Amendments to the Corporate Clauses and General Regulations
The Corporate Clauses and the General Regulations of the Cooperative may be amended at any general regular or extraordinary assembly. The amendments must be approved by a two-thirds vote of the members present, and in the case of cooperatives organized by district, with the vote of two thirds (2/3) of the delegates present.
The Board shall notify all the members of the cooperative of the holding of the assembly that shall consider amendments to the general regulations or the corporate clauses, at least twenty (20) days beforehand. Said notice shall expressly indicate the intention of amending the general regulations or the incorporation clauses, identify the sections or articles of the regulations that shall be subject to amendments and the nature thereof, and indicate that a complete copy of the texts of the proposed amendments shall be available, free of charge, to every member in any of the branches and service offices of the cooperative, as of the notice, and also at the entrance to the assembly. In the
case of the cooperatives organized by districts, the complete texts of the amendments shall be remitted to the delegates along with the notice of the proposed amendments, and all members shall be guaranteed the opportunity to present their viewpoints on the proposed amendments in their respective district assembly, if it has been convoked, or through its delegates in the assembly of delegates.
The original and two (2) copies of the amendments to the corporate clauses, or the general regulations, duly certified by the Secretary of the cooperative, shall be filed before the Corporation, along with a certification signed by the Chairperson of the Board of Directors, to the effect that the amendments are consonant with the provisions of this Act, Act No. 114 of August 17, 2001, and the regulations adopted by virtue thereof. Once they are filed before the Corporation, the cooperative shall submit the amendments to the corporate clauses to the Secretary of State for registration. Provided, that they shall become effective on the date of said registration. In the case of the amendments to the general regulations, they shall be filed in the cooperative's files as soon as they are received by the Corporation, and shall become effective on the date of said registration. In the case of amendments to the general regulations, they shall be filed in the cooperative's files as soon as they are received by the Corporation, and shall become effective on the registration date.
In addition to the incorporators, every person, other than a profitable juristic person, that meets the requirements established in the incorporation clauses and the general regulations of the cooperative, may be a member of a
cooperative. Minors may be members of a cooperative, subject to the limitations established in the laws of Puerto Rico and the general regulations of the cooperative. Periodic contributions to the capital account, as provided in the general regulations of the cooperative, shall be an essential condition for membership.
The admission of a person as a member of a cooperative shall not be refused or barred, due to race, sex, religion or political beliefs, or social or economic condition, and the eligibility of members may be defined by like groups in the exercise of the constitutional right to free association. The Board may refuse the admission of a person as a member of the cooperative when there are grounds to believe that said person can injure or obstruct the attainment of the goals and purposes of the cooperative, or has been expelled as a member, or has been removed from any office on the board of directors of any other cooperative entity.
Section 4.02 - Rights of the Members The members of every cooperative shall have the following rights and prerogatives:
(a) participate with voice and vote in the general assemblies of members, on a basis of mutual respect, equality and decorum;
(b) elect and be elected to office on the board of directors of the cooperative;
(c) use the cooperative's services;
(d) keep informed of the financial status of the cooperative and the operations and activities it conducts, through the corresponding reports. By means of a sworn statement that consigns its purpose, a member shall have the right to examine the roster of members and other books of the cooperative, as well as to make copies or extracts
thereof, during regular office hours, for purposes related to his/her interests as a member; Provided, that no member shall have the right to access information that by provisions of law or applicable regulations is confidential or privileged, including information that constitutes business secrets or strategies. In case of a controversy on the legitimacy of the purposes of the member or of the confidentiality or privilege that binds the information requested, the controversy shall be adjudicated by the Corporation;
(e) ascertain the status of his/her accounts, assets, and transactions in the cooperative;
(f) share equitably in the distribution of surplus, if any, according to the policies approved by the general assembly; and
(g) upon becoming a member, receive a copy of the regulations of the cooperative, the documents it provides, and the standards of operation of the cooperative.
The rights and prerogatives of a partner provided in this Section, as well as those that are recognized for them in the general regulations of the corporation shall remain in suspense in all cases in which the member is not up to date in the payment of his/her obligations and debts with the cooperative, including the payment of the loans of which he/she is comaker, and the acquisition of shares required by the general regulations.
Section 4.03 - Obligations of the Members Every member of a cooperative shall have the following obligations with regard to the same:
(a) comply with the corporate clauses, the general regulations and the obligations imposed by this Act;
(b) make the periodic contributions to the share account as provided by the general regulations of the cooperative. The cooperatives shall be authorized to include the periodic payments of said shares as required in the general regulations as part of the payment of loans that are granted to the members and make direct discounts from the deposit accounts to make said contributions;
(c) protect the interests of the cooperative and the good credit and public trust thereof ;
(d) fulfill every contract, covenant, commitment, or social or pecuniary obligations contracted with the cooperative; and
(e) perform the functions of the office for which he/she is elected or designated, responsibly, and punctually attend the meetings of the committees to which he/she belongs.
Section 4.04 - Registry of Members and Non-Members Every cooperative shall keep and maintain an updated register or list of members, which shall include the following items:
(a) name, address and occupation of each of the members whose credentials and identity must be verified;
(b) number of shares owned by each member with their corresponding numbers, if available, and the amount paid on said shares; and
(c) exact date the person became a member of the cooperative.
It shall also keep updated information, in a separate register, on the depositors and persons who are not members, but who receive services of the savings and credit cooperative.
Section 4.05 - Voluntary Member Resignations Every member of a cooperative may voluntarily withdraw from it at any time, in which case the member must give written notice to the Board in
advance, as required by the general regulations. This notice shall be considered by the Board or by the officials, executive officers or employees, on whom said function is delegated. When the retiring partner holds an office on the Board, or on any committee, or is an executive official of the Cooperative, the withdrawal of his/her assets shall be subject to the provisions of Section 6.06 of this Act.
Partners who retire voluntarily from a cooperative shall be liable for all debts and obligations pending therein on the date of his/her resignation.
Section 4.06 - Causes and Procedures for the Removal of Members Members of a cooperative can be removed and deprived of their rights therein when they incur one or more of the following causes:
(a) perform acts for which the Cooperative is bound to file a claim pursuant to the fidelity bond;
(b) are delinquent in the payment of loans that have been granted to them and the Cooperative has been compelled to resort to the guarantor of the loan, or to any legal action or resource to recover the same;
(c) issue, collect, or have collected fraudulent or bad checks through the Cooperative; or with insufficient funds for their payment;
(d) act against the best interests, goals, and purposes of the Cooperative;
(e) incur violations of the laws and regulations that govern cooperatives;
(f) intentionally or negligently, and in the context of his/her relationship with the Cooperative, make any statement that is false or deceitful in any material aspect, at the moment and in view of the circumstances under which it is made, that provokes or could provoke losses to the Cooperative;
(g) intentionally or negligently, and in the context of his/her relationship with the Cooperative, fail to consign a material fact needed to prevent
that a statement become false or deceitful at the moment and in view of the circumstances under which it is made in any material aspect, that provokes or could provoke losses to the Cooperative; and
(h) violate an order of the Cooperative.
When the Board determines that it is pertinent to act to separate a member from membership in the Cooperative, it shall notify the member thus affected, by certified mail, specifying the reasons for it. In said notice, it shall inform the member in question of his/her right to an administrative hearing, which shall be held no later than thirty (30) days following the date the notice issued by the Board is received.
The member thus affected, may attend the hearing in person, or assisted by counsel, and shall have the right to examine the evidence against him/her, cross-examine witnesses, and present evidence in his/her favor. The Board shall evaluate the evidence presented, issue its decision within fifteen (15) days following the date that the administrative hearing is concluded, and shall notify it to the party in question by certified mail, within five (5) days following the date it issued its decision. Every decision of the Board to separate a member of the Cooperative shall be effective as of the date of the notice to the person thus affected.
The decisions of the Board to separate a member of the cooperative from membership thereof, may be appealed before an arbitration panel as provided in Section 7.07 of this Act. However, any member that is separated from the membership of a cooperative shall be liable for any debt or obligation that he/she may have pending with it on the date of his/her separation.
The persons who are separated from a cooperative for the causes established in this Section may again associate with the same, or another cooperative, when there is attesting evidence, to the satisfaction of the Board,
that they have overcome or compensated for the circumstances that gave rise to the separation. Every member of a cooperative that avails him/herself of the Bankruptcy Law must meet the requirements established in said Act before being able to reacquire his/her capacity to assume debts therein.
Section 4.07- Transfer of Shares
(a) By the members.-The shares kept by the members in a cooperative shall be susceptible for sale, cession, gift, and any other transfer of rights or title by a member, subject to the following conditions:
event of a sale of loan portfolios, or transactions for the sale of assets and assumption of liabilities, subject to authorization by Corporation. In such cases, the shares of the transferring cooperative could be converted to shares of the acquiring cooperative, being subject to the provisions of the general regulations of said entity.
The general assembly is the maximum authority of every cooperative, and its decisions are binding on the attending and absent members, its Board, and committees, provided they are adopted pursuant to the incorporation clauses, the general regulations, and the applicable regulations and laws. In the case of cooperatives that are not organized by districts, the general assembly shall be composed of the members. Said general assembly of members shall be held annually. In the case of cooperatives that are organized by districts, the general assembly shall be the assembly of delegates. In the latter case, the cooperative shall hold district assemblies in which the district directors, as well as the delegates that correspond to each district, shall be elected. The number of delegates to be elected in each district shall never be less than three (3) delegates, nor less than one (1) percent of the total number of members in the district, up to a maximum of twenty (20) per district.
The general assemblies of members and the general assemblies of delegates shall be held annually within the first four (4) months of the fiscal year of the cooperative. The general assemblies, for just cause, and at the satisfaction of the Corporation, the general assemblies or members or delegates, as the case may be, can be held on a later date than established
above, endeavoring at all times to preserve the right of the members to be informed of the results of the operations, to elect the delegates, directors and committee members in an opportune way, and to receive the corresponding distribution of overages, if any, all of which, regardless of the fact that the assembly in question is considered as regular or special.
It shall be the responsibility of the Board of Directors to achieve the most expeditious holding of the assemblies. Provided, that in any case that six (6) months or more have elapsed following the end of the fiscal year of the cooperative, without having held the general assembly of members or delegates, the Corporation shall issue an order to the Board of Directors to show cause as to why the imposition of fines on the directors has not proceeded for the delay in holding said assembly.
The holding of every district assembly and of delegates whether regular or special, must be notified at least ten (10) days prior to the date it is held.
Section 5.02- Notice of Meetings The Board of Directors may convoke special, general or district assemblies, when it is deemed convenient. The cooperative shall be bound to call special assemblies when requested by:
(a) ten percent ( $10 %$ ) of the total number of members of the cooperative when it is a general assembly of members;
(b) ten percent ( $10 %$ ) of the total number of members of a district when it is a district assembly; or
(c) fifty percent ( $50 %$ ) of the total number of delegates, when it is a general assembly in a cooperative organized by districts.
The request shall specify the matters to be considered in the extraordinary assembly.
Section 5.03- Quorum In every general or district assembly of members, a quorum of not less than ten percent ( $10 %$ ) of the first one thousand $(1,000)$ members, and three percent (3%) of the excess of one thousand $(1,000)$ members shall be required; Provided, that those members who are minors, shall not be considered for the purpose of computing the required quorum, nor shall they be considered as members present to complete said quorum. Any member who is delinquent in his/her obligations with the cooperative as of the date that the call to the meeting is issued shall also be excluded from both computations.
A quorum of the majority of elected delegates shall be required in the assemblies of members. In general assemblies of members or delegates, as pertinent, quorum shall never be less than the total number of members to be elected to the Board, and to the Credit and Supervision Committees.
The members of the Board and of the committees elected as delegates in an assembly shall abstain from voting on their respective reports or matters related to their functions.
In the event that the required quorum is not achieved in a first call to meeting, a second call to meeting shall be issued for the assembly, in which the members or delegates that are present shall constitute quorum. The second call to meeting shall never be made before two hours have elapsed from the first call, provided that the first and second call have been expressly indicated in the written notices remitted to the corresponding members or delegates, with an express indication that the members present for the second call would constitute quorum.
Section 5.04- Right to Vote The members of a cooperative, whether natural or juridical persons, and regardless of the number of shares they hold, shall each be entitled to one (1)
vote. No member shall issue his/her vote through a proxy, except in the case of the members who are juridical persons, who may vote through their authorized representative. In the case of cooperatives organized by district, each district delegate shall be equally entitled to one (1) vote.
Section 5.05- Requirements of the Members of the Board of Directors Only those members who, at the moment of their election or designation, meet and comply with the following requirements during their entire incumbency in their respective offices, may be members of the Board of Directors of a cooperative:
(a) be natural persons;
(b) have not been convicted of felonies or misdemeanors that imply fraud, embezzlement, or moral turpitude. Nor can persons who have been convicted of a felony or misdemeanor that constitutes a violation of honesty or public trust. Every person elected or designated to any Board of Directors of a cooperative shall present a Negative Criminal Record Certificate, duly issued by the Puerto Rico Police, no later than sixty (60) days after their election or designation;
(c) comply with the regulations adopted by the Corporation to preserve its integrity and prevent conflicts of interest in the cooperatives;
(d) hold no direct or indirect economic interest in any profit or nonprofit public or private enterprise, whose business competes with the businesses of the cooperative;
(e) produce evidence of their capacity to hold office, complying with all the requirements established in the general regulations of the cooperative. No person who is the subject of a diagnosis of total or partial mental disability issued by any government body shall be a
member of the Board of Directors nor of any committee of the Cooperative;
(f) do not hold office on the Boards of Directors of any other savings and credit cooperative;
(g) do not, or have not, held the position of executive officer or employee of a cooperative, the Cooperative Bank, nor cooperative underwriters during the last twenty-four (24) months;
(h) eligible to be covered by a fidelity bond for the cooperatives, except in the case of members of the assembly of delegates or those who aspire to be, to whom this requirement shall not apply;
(i) have not been dismissed as members nor removed from office as members of a board of directors or as an executive officer of any cooperative, for the causes stated in this Act, or as a member of the Board of Directors or the committees, or as executive officer of any bank or savings bank, as defined in the Puerto Rico Banking Act, or the Puerto Rico Savings Bank Act, respectively, or the Cooperative Bank of Puerto Rico;
(j) for the twelve (12) months prior to the election or designation, not have shown any noncompliance with any of their obligations and debts with the cooperative, including the annual or periodic payments to their share account as required by the general regulations of the cooperative;
(k) take and approve the training courses endorsed by the Corporation during the first year of their appointment and subsequently comply with the continuing education requirements adopted by the Corporation through regulations. Provided, that these requirements
shall not apply to the members or those persons or those who hope to be on the assembly of delegates; and (1) any person who, as of the effective date of this Act holds an elected position in the central government or as Mayor, may be a member of the Board of Directors nor the Committees, with the exception of persons who hold office as municipal legislators.
Every person who upon their election or designation to an office on a Board of Directors shows any of the causes of ineligibility described in this Article shall be impeded from holding and performing his/her office, without it being necessary to engage in an ejection procedure. In such cases, the office shall be declared vacant and shall be filled as provided in Article 5.08 of this Act.
Section 5.06- Election and Composition of the Board of Directors
(a) In the case of newly organized cooperatives, the incorporators shall designate the first Board of Directors and the respective committees, pursuant to the provisions of this Act, the regulations adopted thereby, and the general regulations of the Cooperative.
(b) In the case of savings and credit cooperatives in operation that are not organized by districts, the general assembly of members shall cover by election, the positions on the Board whose terms have expired.
(c) In the case of savings and credit cooperatives organized by districts that are already in operation, the members of the Board that represent each district shall be elected in the district assembly according to the number of said directors that correspond to each district, according to the general regulations. The positions of Board members at large, whose terms have expired, if any, shall be filled through an election at the general assembly of delegates.
(d) In cases that, for any event, the election of directors cannot be held during the general assembly of members or delegates, said election can be held at a special assembly.
(e) In every case, the Board of Directors shall be made up of not less than seven (7) nor more than fifteen (15) members.
(f) Every person who hopes to be a member of the Board of Directors must have been a member of a cooperative at the time of the election, for a term of one (1) year, and have fully complied with his/her obligations as a member during said period. Section 5.07- Terms of Office
(a) General Rule.- Members of the Board shall be elected for a term of not more than three (3) years each, and shall hold office until their successors are elected. The members of the Board cannot be elected to fill the same or other elected office for more than three (3) consecutive terms. For the purposes of this provision, an elected term shall be considered as the period for which a person is elected by the general assembly of members, the district assembly, or the general assembly of delegates, as the case may be, regardless of whether it is completed or not due to resignation or any other cause. In the cases in which a member of the Board resigns his/her office before the first or second term of being elected, and is again elected in the assembly subsequent to his/her resignation, said terms shall be deemed as consecutive.
(b) Regarding Every Cooperative.- The general regulations of every cooperative shall provide for the staggered election of the Board members, so that the term of election of not less than one third (1/3) of the members of said Board does not expire in the same year. The
term of incumbency by designation as a member of the Board shall be counted as a term only when the office is held for more than one (1 year. Members of the Board that hold an elected office that expires in their last consecutive term can not be elected or designated for the same, or any other elected office in the same cooperative until twenty-four (24) months have elapsed from the date they ceased in office.
Section 5.08.- Vacancies Vacancies that arise among the members of the Board shall be filled by appointment through the vote of the majority of the remaining incumbent members duly constituted to such effects, subject to ratification by the corresponding general assembly of members, the district assembly, or the assembly of delegates, as pertinent. When a cooperative is organized by districts and the member who caused the vacancy is a member who represents a district, it shall be filled by the Board with another member of the corresponding district.
Any person appointed by the Board to fill a vacancy shall appear for consideration by the next assembly of delegates, the next district assembly, or the next assembly of delegates, whichever is pertinent. Upon being ratified by the corresponding assembly, said director shall take office until the term for which the original director was elected and whose vacancy was filled, concludes. If not ratified, the assembly shall proceed to elect a director, who shall take office until the expiration of the term for which the original director who provoked the vacancy was elected.
Section 5.09- Duties of the Members of the Board and Election of Officers
The members of the Board shall be responsible for the definition and adoption of the institutional policies of the cooperative, shall have a fiduciary responsibility towards it and its members, and shall act as a good paterfamilias in all cooperative affairs.
The Board of each Cooperative shall meet within ten (10) days following the date the corresponding general assembly of members or delegates was held, to elect the officers of the Board of Directors, pursuant to what is established in the general regulations thereof. The directors who have held said office as director for one (1) year or more, and have approved the training courses required in Article 5.05(k) of this Act, shall be eligible to hold official positions on the Board.
Article 5.10- Powers and Duties of the Board
(a) It is the authority, responsibility and fundamental duty of the Board to define the policy, norms and general management regarding the operation and functioning of the cooperative, of which the management, under the control of the Executive Chairperson, shall be responsible. In the discharge of said responsibility, the Board of Directors shall adopt the following policies and norms, pursuant to the provisions of this Act and the regulations adopted thereby:
shall allow management the operational speed and flexibility needed to ensure the competitiveness of the cooperative; 2. the investment policy of the cooperative; 3. the loan policy of the cooperative; 4. the institutional norms and policies for the compensation or remuneration for services rendered that the executive officials and employees shall earn; 5. the educational policy of the cooperative; 6. the marketing policy; 7. the policies regarding human resources, including a policy against sexual harassment, equal job opportunities, employee leaves and benefits; internal employment policies regarding conflicts of interest, internal attendance policies, timeliness, and other matters pertinent to the work performed in the cooperative. In addition, a policy on conduct and disciplinary actions, and the standards for compensation or remuneration for services rendered that the executive officials and employees of the cooperative shall earn. 8. the operating budget of the cooperative; and 9. the Code of Ethics that shall apply to members of the boards of directors and employees of the cooperative.
(b) In addition, the Board of every cooperative shall have the following powers and duties:
officials and employees of the Cooperative, as well as to perform the managerial and administrative functions of the cooperative, including the implementation of the institutional policy established by the Board; 2. see to the implementation of and compliance with the institutional policies. The Board shall also supervise and evaluate the performance of the Executive President; 3. define the standards for the approval of the petitions for membership and withdrawal from membership. The function to consider and approve the applications for membership and withdrawal under the norms defined by the Board shall pertain to the officials or employees of the cooperative designated by the Executive President for such purposes, who shall render a monthly report to such effects to the Board; 4. decree the separation of members for the causes and pursuant to the procedure established in Article 4.06 of this Act; 5. ascertain that all the members of the Board, of the committees of the cooperative, the executive officials, employees, and any person who handles the funds of the cooperative, are covered by a fidelity bond in the amount and form established by the regulations adopted by the Corporation. Any person who is ineligible or whose fidelity bond has been cancelled cannot fill any of the offices, positions or employment mentioned above; 6. submit to the corresponding annual general assembly of members or delegates, its recommendations or amendments to the general regulations and the corporate clauses of the cooperative.
exercise all the responsibilities inherent to Boards of like nature; and 14.undertake the contracting of certified public accountants that shall be in charge of the annual auditing of accounts.
Article 5.11- Functions and Responsibilities of the Executive President Acting in accordance with the institutional policies adopted by the Board of Directors of the cooperative, the Executive President shall have the following functions and responsibilities:
(a) implement the institutional policies adopted by the Board.
(b) select, recruit, supervise, evaluate and remove all personnel of the cooperative pursuant to the institutional policies adopted by the Board. He/she shall also have the responsibility of coordinating and supervising the administrative units and ensure the efficiency of the managerial and financial procedures;
(c) develop and implement a management training and cooperative education program that shall cover the technical areas of administration, marketing, accounting and finances and inform them on the principles and philosophy of the cooperative movement;
(d) draft and establish the regulatory compliance programs to guarantee faithful compliance with the local and Federal laws and regulations that apply to the operations of the institution;
(e) draft the business plan of the cooperative which shall propitiate an adequate and sustained financial performance through the adoption of measurable operational goals, strategies and objectives that shall provide guidance to the cooperative. If deemed appropriate, the Executive President shall identify the external professional resources to assist him/her in drafting said plan, which contracting shall
comply with the contracting norms and policies of the institution. Said plan shall require the final approval of the Board of Directors. The Executive President shall exercise administrative authority to implement the institutional policy agreements and the directives of the business plan of the institution, and draft the annual schedule of work that corresponds to the achievement of the goals, strategies and objectives of the business plan of the cooperative;
(f) develop the budget proposal which shall be submitted to the Board of Directors for its consideration and approval, before commencing the operating year of the cooperative; and
(g) keep the Board of Directors informed on the operational, administrative and financial condition of the cooperative, through regular monthly reports to the Board of Directors, as well as any other special reports that in his/her judgment, or that of the Board of Directors, should be submitted.
Article 5.12- Election and Composition of the Supervisory Committee A Supervisory Committee shall be elected at the first general assembly of members or delegates of every cooperative, which shall be composed of three (3) members. The members of the Supervisory Committee shall be elected for a term of not more than three (3) years each, and shall hold office until their successors are elected. Regarding their reelection, the members of the Supervisory Committee shall be subject to the same limitations as the members of the Board. The general regulations of every cooperative shall provide for the staggered election of the committee by the corresponding general assembly of members or of delegates, so that the term of election of not more than one third (1/3) of the members of said committee elapses in the same year.
When a vacancy occurs among the members of the supervisory committee, the remaining members shall designate an eligible member to fill the vacancy, subject to ratification by the next general assembly of members or delegates, as the case may be. Every person nominated to fill a vacancy shall appear before the consideration of the next assembly of members or delegates, as the case may be. In the event said committee member is ratified by the corresponding assembly, said committee member shall hold office until the expiration of the term for which the member of the original committee was elected. In the event the member is not ratified, the assembly shall proceed to elect a committee member who shall hold office until the expiration of the term for which the original committee member was elected.
Article 5.13- Functions of the Supervision and Auditing Committee The supervision and auditing committee of each cooperative shall have, besides any others that are provided in this Act or its regulations, the following functions and responsibilities:
(a) assist the internal and external auditors in the examination of the accounts and operations of the Cooperative, and perform the audits it deems are necessary or convenient for the best interests of the Cooperative;
(b) receive and analyze the reports of the external auditors and the Corporation;
(c) render a report to the Board on the result of the examinations of the Cooperative no later than thirty (30) days following the date that it concludes;
(d) render a written report to the General Assembly and the Corporation, on the work performed by said Committee during the year, it being understood that that the committee shall not issue a pronouncement
on the effectiveness or efficiency of the administrative charges of the Board. Said report shall not include information that by provision of law or of applicable regulations is confidential or privileged. The Supervision and Auditing Committee shall present and discuss this report with the Board no later than twenty (20) days prior to the date said assembly is held.
(e) act as a mediator in any controversy of the members that arises in the application of the statutory or regulatory provisions of the cooperative, provided they are not labor-management controversies;
(f) ascertain that the cooperative complies with the recommendations contained in the audits performed, see to the legality of the actions of the Board and management, the veracity of the reports that they present to the members, and the security of the assets of the cooperative;
(g) request the Board of Directors to contract the personnel that the committee needs to carry out its functions and discharge the responsibilities, subject to the appropriation of funds authorized by the Board, according to the schedule of work presented by the committee;
(h) the Supervision Committee may recommend to the general assembly the suspension or separation of any member of the Board or of any committee that has incurred violations of the provisions of this Act, upon the filing and serving of charges, and the holding of a hearing before the committee. The person thus charged may attend the hearing, accompanied by legal counsel; and
(i) perform such other functions that are assigned to it by the Assembly.
Article 5.14- Designation and Composition of the Credit Committee
The Board shall designate a credit committee, composed of not less than three (3) regular members and two (2) alternate members, who shall perform the functions of those who hold office in every case of temporary absence. The members of the credit committee shall be designated for a term of not more than one (1) year each, and shall hold office until their successors are appointed, and may be re-designated to their positions. Whatever vacancies that arise among the members of the credit committee shall be filled by the Board for their uncompleted term.
The Board may also designate credit officials, on whom they may delegate the power to evaluate the requests for loans and authorize them up to the maximum limits set by the Board. Said officials shall inform the credit committee of all applications denied by them, for its pertinent action, and shall render a written report to the credit committee with the frequency established by the Board, but not less that once (1) a month, on the loans they authorize and deny.
Article 5.15- Functions of the Credit Committee The Credit Committee of every cooperative shall have, in addition to any others provided in this Act or its regulations, the functions and responsibilities indicated below:
(a) consider, approve, or deny loans for amounts in excess of those that the credit officials are authorized to grant, but up to the limits fixed by the lending policy established by the Board. The loan applications of the members of the directing bodies, the supervision committee, and the executive officials, in excess of their shares and deposits, shall be considered at a meeting in which a member of the supervision committee is present, and who shall participate with voice and vote in said meeting;
(b) evaluate and submit for the consideration and final decision of the Board those loan applications in amounts in excess of the maximum limits that the Committee is authorized to grant;
(c) review and analyze the reports of the credit officials on the loans that they grant or deny and render a report thereof to the Board;
(d) render a monthly report to the Board on the loans that the Committee grants or denies.
The Credit Committee shall meet as many times as needed for the performance of its duties, upon prior agreement thereof, or a call to meeting by its Chairman or the Acting Chairman or the Executive President.
Section 5.16- Designation and Composition of the Education Committee The Board shall designate an Education Committee to develop a cooperative education program, according to the standards adopted pursuant to the provisions of this Act. This Committee shall be composed of not less than three (3) members nor more than seven (7) members, at least half of which shall not be members of the Board nor of other committees of the Cooperative. The members of the Education Committee shall hold office for a term of one (1) year and shall perform their duties until their successors are elected, and may be re-designated to their positions by the Board of Directors. Any vacancies that may arise among the members of the Education Committee shall be filled by the Board for the remainder of the term of the outgoing member.
Section 5.17- Educational Policy The Board of Directors shall adopt an educational policy that shall lead to the education of members, boards of directors, managers and employees, which shall be addressed to expedite and propitiate:
(a) the generation of new volunteer leaders with technical and financial knowledge;
(b) personal financial education at individual and family levels with a view to develop a better credit consumer, reduce the incidence of bankruptcies, and stimulate savings and investment in productive activities;
(c) education on the main guiding principles, doctrines, nature and benefits of the cooperative movement, mainly for young people and decision makers.
The Board Of Directors shall provide the necessary resources in the budget of the cooperative, to implement the educational policy and shall continually supervise its execution and implementation. The budgetary items assigned for education shall be destined to the direct rendering of direct educational services. The content of the educational policy doctrine on the cooperative movement shall be based on the principles approved by the Cooperative League. It shall be the express obligation of the Corporation to verify the use of the budget assigned for the rendering of direct educational services. The provisions of this Article shall not lessen the obligation of the cooperative, its board of directors and employees to comply with the continuing education requirements provided by the Corporation pursuant to Act No. 114 of August 17, 2001.
Section 5.18- Functions of the Education Committee The Education Committee of each cooperative shall have the following functions and responsibilities:
(a) pursuant to the educational policy established by the Board, it shall draft a working plan, to:
(b) attend to the training needs of the members of the Boards of Directors on the matters inherent to the functions they perform;
(c) provide education to the personnel of the cooperative on the principles, methods and characteristics of the cooperative movement and the entrepreneurial function of the cooperative;
(d) provide information to the community on the benefits and services of the cooperative and the cooperative movement in general; and
(e) coordinate the educational and training processes for the development of new cooperative leaders and future members of the boards of directors.
(f) render a bi-annual written report to the Board on the work performed in the corresponding tern; and
(g) render an annual report to the general assembly on its activities and achievements.
Section 5.19- Compensation and reimbursement of expenses
(a) None of the members of the Board of Directors shall receive any compensation or remuneration whatsoever for the performance of their functions. However, the general regulations of the Cooperative may authorize the payment of per diems for attendance to official meetings, subject to the rules specifically adopted by the Corporation to such purposes. Said rules shall provide, among other things, the maximum permissible amount for this item, per meeting, and practices not allowed regarding the payment of these amounts.
(b) Furthermore, the cooperative may reimburse any reasonable expenses incurred by the members of the Board of Directors in the performance of their functions, upon presenting documentary evidence thereof, pursuant to the regulations adopted by the Board of
Directors of each cooperative. The Corporation is also empowered to adopt specific regulations on this matter, which shall define reasonable amounts and forbidden practices regarding the reimbursement of expenses. It shall be the responsibility of the Board of Directors to see to the faithful compliance of the standards provided in the Regulations of the Cooperative and in the regulations adopted by the Corporation on this matter.
(c) The payments made under this Article shall only cover official travel expenses that specifically advance the interests of the cooperative and that shall benefit it. A detailed list of all sums paid for this item shall be expressly divulged in the annual report distributed to the members.
(d) No cooperative that has failed to distribute its surplus among its members for two (2) consecutive years, shall make any payment whatsoever to the members of the Board of Directors.
(e) Any payment of commissions, incentives, benefits, or promotions, or any other object of value received by the cooperative shall be for the exclusive benefit thereof, and shall not favor nor benefit any member of the Boards of Directors, the Executive President, nor any employee.
(f) None of the above shall restrict the power of the cooperatives to provide the necessary insurance to the executive officials and members of the Boards of Directors to protect each of them while they are exercising the functions of their office. The cooperative may also acquire the following insurance for them:
Section 5.20.- List of Directors and Committee Members Every cooperative shall remit a complete list of the members of their Boards of Directors, indicating the official position held by each of them.
These lists shall include any other pertinent information required by the Corporation and shall be sent no later than twenty (20) days following the date that the members are elected or designated. In the case of vacancies, a written notice shall be sent to the Corporation and the Cooperative League, indicating the name of the member of the Board of Directors who caused the vacancy and that of his/her substitute, no later than twenty (20) days following the date that the substitute takes office.
Section 5.21- Causes for Separation of Members of the Board of Directors
Any member or official of the Board of Directors may be separated from office for the following causes:
(a) incur any of the actions constituting cause for the separation of members of a cooperative that are established in Section 4.06 of this Act;
(b) violate the provisions of this act, Act No. 114 of August 17, 2001, known as the Corporation Act or any of the acts that apply to the operation of the cooperative or of the regulations adopted, or administrative orders duly issued by virtue of said laws and regulations;
(c) violate the corporate clauses or the general regulations of the Cooperative;
(d) incur conduct that constitutes a violation of his/her fiduciary duties;
(e) is no longer eligible pursuant to this Act and its regulations, for the office he/she holds or that his/her participation in the affairs of the cooperative is injurious to the best interests or the financial solvency thereof;
(f) present a pattern of absences without just cause therefore. The Code of Ethics of each cooperative shall provide the norms, parameters and procedures pertaining to this matter;
(g) engage in inadequate practices in the performance of his/her functions in the cooperative;
(h) fail to comply with the requirements provided in Section 5.05 of this Act; and
(i) prevent, hinder, or unduly interfere, by intentional or negligent act or omission, with the convocation or holding of any of the assemblies of the cooperative as provided by this Act, the regulations adopted by virtue thereof, the certificate of incorporation of the cooperative, or its general regulations.
Section 5.22- Procedures for Removal
(a) The members of the Boards of Directors may be removed from office as provided below: (1) By petition of the members - Any member can initiate a procedure for removal against a director, by filing a written request stating the imputed charges, signed by five percent (5%) of all the members or by ten percent ( $10 %$ ) of the delegates.
(2) By petition of the Directors - Every Director may initiate a procedure for removal against another Director by filing a written request before the secretary or the president of the Board of Directors with a copy to the Supervision Committee that states the imputed charges, signed by two thirds (2/3) of the remaining members of the Board.
Every petition for removal presented by the initiative of the members, delegates or Directors, shall be submitted to the consideration of the next general assembly, which may be extraordinarily convoked to such effects. Said assembly may remove the Director of the Board with the concurrent vote of the majority of the members or delegates present, as the case may be.
The member of the Board thus affected by the decision of the assembly to separate him/her from office shall have the right to submit a written petition to the next general assembly, which may be an extraordinary assembly convoked to such effect for the reconsideration of his/her removal. The decision of the assembly may be appealed before an arbitration panel as provided in Section 7.07 of this Act.
(b) Officials of the Board - The officials of the Board may be removed from office by the majority vote of the members thereof, upon due notice of the grounds for which they are being removed from office. The decision of the Board shall be to the sole effect of relieving him/her from his/her functions as an official, and shall not have the effect of removing him/her as a member thereof, for which the provisions in subsection
(a) of this Section shall be observed in every case. The decision of the Board to separate one of the officials from his/her functions may be appealed before an arbitration panel, as provided in Section 7.07 of this Act.
(c) Committee Members - The committee members appointed by the Board may be removed from office upon prior notice of the charges that are imputed, and the holding of a hearing to which they may attend in person or accompanied by legal counsel. The decision to remove from office shall be to the sole effect of relieving him/her from the functions as a member of the committee, and shall not have the effect of removing him/her as a member of the Board, for which the provisions of subsection
(a) of this Section shall be observed in every case.
The decision of the Board to separate a member of a committee from office may be appealed before an arbitration panel, as provided in Section 7.07 of this Act.
Section 5.23- Limitation of Employment No member of a Board of Directors may be an employee of a savings and credit cooperative until at least two (2) years have elapsed from having ceased in his/her office on the Board or committee, whether by completion of his/her term of office, or resignation from the position held on a Board of Directors.
Section 5.24- Power of the Board to Remove from Office
(a) When the Corporation has grounds to believe that any member of the Board or an officer thereof, or any member of the other Boards of Directors, or any executive officer or employee of a cooperative has incurred one of the causes for removal established in Section 5.21 of this Act, he/she shall raise charges against same, pursuant to the provisions of Section 19 of Act No. 114 of August 17, 2001. The order to show cause may provide for the provisional release from functions of the person thus affected. The administrative procedure
initiated by the Corporation pursuant to this Section shall give strict compliance to the provisions of the Organic Act of the Corporation.
(b) Every person who is permanently removed from office as a member of the Board or as an official thereof, or as a member of any of the other Boards of Directors, or as executive official of a cooperative shall be impeded from being elected, designated, appointed or contracted to hold any office, or be employed in any other cooperative, except by requesting and receiving the approval of the Corporation.
(c) In the case of a cooperative that is under receivership, liquidation, involuntary fusion, sale of assets, a cease and desist order, or any other government intervention that exceeds one (1) year, any person who during the three (3) years prior to the intervention, has held the office of director, member of the supervision committee or executive officer shall be barred from being elected, designated, appointed or contracted to hold any office or employment in any other cooperative, unless he/she requests and obtains the prior approval of the Corporation. At the moment that the cooperative is audited by the Corporation, it shall grant the directors, members of the supervision committee and executive officials covered by this subsection, a reasonable opportunity to show their diligence in discharging their functions, and thus obtain the authorization to hold any office or employment in any other cooperative.
Section 6.01- Capital of the Cooperative
The capital of every cooperative shall consist of the total amount of its capital stock, indivisible capital or surplus, and capital liabilities.
Section 6.02- Indivisible Capital
(a) Cooperatives shall maintain an indivisible capital reserve that shall be known as indivisible capital. Fifty percent (50%) of the indivisible capital reserve shall be maintained in liquid assets. As of December 31 of the year of approval of this Act, each cooperative must have a minimum indivisible capital of three percent (3%) of its total risk assets. From this date on, the indivisible capital of each cooperative must reach the following levels on the dates listed below, regarding the risk assets defined in subsection
(d) of this Section: A. as of December 31, 2003, a minimum of four percent (4%) of its total risk assets; B. as of December 31, 2004, a minimum of five percent (5%) of its total risk assets; C. as of December 31, 2005, a minimum of six percent (6%) of its total risk assets; D. as of December 31, 2006, a minimum of seven percent (7%) of its total risk assets; E. as of December 31, 2007, a minimum of eight percent (8%) of its total risk assets;
capital and the corresponding reasonable installments to achieve them. For a the purposes of this Act, the risk assets of the cooperative shall be figured according to the risk parameters defined in subsection
(d) of this Section. Once the cooperative meets the minimum requirements provided in this Section, it shall have the discretion to reduce the share that it must incorporate to the indivisible capital. 2. Every cooperative whose indivisible capital reserve meets the sums required in subsection
(a) (1) of this Section and has no accrued losses, shall be deemed to be adequately capitalized, and no penalties shall be imposed nor shall it be submitted to memoranda of understanding nor to an agreement to continue operations, for the sole reason of lack of capitalization. The Corporation shall have the power to require additional capital through regulations adopted to such goals, to the percentages required in subsection
(a) (1) of this Section, pursuant to the risk profile of the cooperative, taking into consideration the types of financial activity in which it is engaged, and the risk levels they imply. 3. In the case of those cooperatives whose indivisible capital reserve does not meet the sums required in subsection
(a) (1) of this Section, they shall proceed as follows: A. after issuing a formal administrative finding to the effect that the cooperative does not meet the established minimum level of indivisible capital, the Corporation shall require the cooperative to submit a capitalization plan that reasonably indicates the steps that the institution
shall take to overcome said difficulties. The capitalization plan shall at least specify, the following:
(i) specific measures that the cooperative shall adopt to increment its contributions to the indivisible capital reserve. Said measures shall include adjustments of the annual contribution to the indivisible capital reserve contemplated in subsection
(c) of this Section (ii) the level of indivisible capital that the cooperative hopes to achieve for each year covered by the plan; (iii) the financial activities in which the cooperative shall engage and the volumes of business projected by it for each year covered by the Plan; (iv) the level of control in the growth of the assets of the cooperative for each year covered by the plan;
(v) the level of net savings projected for each year covered by the plan; and (vi) the financial support that the cooperative shall receive, if any, from other first, second or third degree cooperative entities; (B) The minimum content required for a capitalization plan and the terms to submit and implement the plan, shall be provided by the Corporation through regulations. In the event that the capitalization plan is not approved, or that after its approval it is subject to substantial noncompliance, the Corporation may consider other regulatory actions. In the case of regulatory actions that affect the continuity of operations or the existence of the
cooperative, the imposition of said restrictions must be ratified by the two thirds $(2 / 3)$ vote of the Board of Directors of the Corporation.
(b) The following shall be deemed as elements of the indivisible capital reserve: (1) indivisible capital reserves, including the sum that the cooperative has accrued up to the effective date of this Act, after subtracting any accrued or current loss; (2) any capital reserves made by the cooperative, except the reserve for unearned profits or losses in marketable securities available for sale as required by the pronouncement issued by the "Financial Accounting Standards Board" ; (3) five percent (5%) of the undistributed profits withheld by the cooperative; (4) the portion of the reserves established by the cooperative to absorb possible future losses in loans or financing, that are not delinquent. Furthermore, the Corporation may also establish by regulations, such portion of the reserves established by the cooperative to absorb possible future losses in delinquent loans or financing, that may be used as part of the undividable capital reserve, for which the corresponding studies shall be made, taking into consideration the standards that are applicable to other financial institutions; (5) capital obligations issued by the cooperative and those other financial instruments expressly authorized by the Corporation, for inclusion as part of the undividable capital; and
(6) other elements established by the Corporation through regulations or an administrative determination.
(c) Every cooperative whose undividable capital reserve is less than eight percent ( $8 %$ ) shall annually separate and incorporate to the undividable capital, twenty-five percent ( $25 %$ ) of its net savings or four percent ( $4 %$ ) of its net operating income, whichever is greater, until the reserves have reached and stay at eight percent ( $8 %$ ) of its risk assets. Every cooperative whose undividable capital has reached and remains at eight percent ( $8 %$ ) of its risk assets, shall have the discretion to reduce the contribution that it shall incorporate to the undividable capital to not less than five percent (5%).
After issuing a formal administrative determination to the effect that a cooperative has not achieved the minimum undividable capital required, the Corporation shall require the cooperative to produce a capitalization plan that shall reasonably demonstrate the steps that the institution shall take to achieve said requirement. With regard to these cooperatives, the Corporation may impose regulatory or administrative restrictions to their operations for lack of capitalization. Said restrictions, as well as the contents of an acceptable capitalization plan and the terms to submit and implement it, shall be defined by the Corporation through regulations. In the event that the capitalization plan is not approved, or that after its approval, is subject to substantial noncompliance, the Corporation may consider other regulatory actions, including ordering its fusion to another cooperative. Any involuntary fusion or transaction for the purchase and assumption of assets shall only take place with another savings and credit cooperative that is authorized in this Act.
(d) The total risk assets of a cooperative shall be determined by applying the following parameters or risk weighting: (1) The following assets shall be deemed non-risk assets, thus with a weighting of zero percent $(0 %)$ :
(i) cash on hand held by the cooperative in its offices or in transit; (ii) loans, obligations, and debt instruments, including portions of each that are issued, insured, or unconditionally guaranteed by the Commonwealth of Puerto Rico or its agencies, or by the Government of the United States or its agencies, including the Federal Reserve System banks, the Government National Mortgage Association (GNMA), Veterans Administration (VA), Federal Housing Administration (FHA), Farmers Home Administration (Fm HA), Export-Import Bank (ExIm Bank), Overseas Private Investment Corporation (OPIC), Commodity Credit Corporation (CCC) and the Small Business Administration; (iii) student loans insured under Title IV, Part B of the 1965 Higher Education Act. (iv) the portion of the loans of members secured by shares, deposits or both, that can not be withdrawn from the cooperative, and
(v) the investments of the Cooperative in the Corporation. (2) the following assets shall be deemed as risk assets with a weight of twenty percent $(20 %)$ :
(i) collectible assets. The Corporation shall determine by regulations which assets may be included under this subsection; (ii) the portion of the loans to non-members secured by liquid assets that secure loans as provided in Section 2.03(a)(2); (iii) loans, obligations and debt instruments, including portions thereof, that are issued, insured or unconditionally secured by the Commonwealth of Puerto Rico and its agencies, or by the Government of the United States, whose obligations are not explicitly endorsed by the full faith and credit of the United States Government, including the investigations and securities; (iv)deposits, loans, obligations and securities, including portions thereof, that are issued, insured or guaranteed by depositary institutions of the United States and Puerto Rico, including the Puerto Rico Cooperative Bank. Stocks of profitable entities are excluded.
(v) book value of the real property, or the appraised value as certified by a duly-qualified appraiser, whichever is less, that is being used or projected to be used as offices, branches, service centers, parking areas or other facilities, the net of any debt that is directly secured by a constituted and formalized mortgage lien on said property; and (vi)prepaid insurance corresponding to the risks of the institution. (3) The following assets shall be deemed to be moderate risk assets with a fifty percent (50%) weighting:
(i) loans fully-secured by first mortgages on residential properties of one to four families. These loans must qualify for sale on the secondary mortgage market, not show a delinquency in excess of ninety (90) days, and have a maximum loan-to-value rate of eighty percent (80%); Provided, that the Corporation may authorize, through regulations or administrative determination, greater total Loan-to-Value rates that are consonant with the secondary market parameters. (ii) The investment that represents a share in such loans as described in the above subsection. (4) All other assets not recognized in any of the above categories shall be deemed as $100 %$ weighting assets. (5) The Corporation is empowered to add any other assets, through legislation or other administrative determination, to the above categories, that merit a risk weighting of less than one hundred percent $(100 %)$.
(e) By decision of its Board of Directors, any cooperative may accelerate the accrual of indivisible capital by contributing an amount to it in excess of what is required in this Section.
Section 6.03- Granting of Loans
(a) Lending Policies - Cooperatives shall grant loans according to the lending standards established by their Board, which shall not be incompatible with the practices used in the administration of financial institutions that are recognized as sound practices, and in protection of the public interest. Said lending policies shall include:
Regardless of the guarantees and collaterals offered, no cooperative shall grant a loan to any person unless the existence of reliable sources for the repayment thereof, as agreed, is confirmed and documented, which sources can be sufficient assets deposited in the cooperative and withheld by it, including liquid assets as provided in Section 2.03 of this Act, in the case of non-members.
Lending policies shall be revised periodically to ensure their adequacy in view of market fluctuations, delinquency trends of the portfolio, the quality of the assets of the institution and the need to maintain a competitive position.
(b) Documentation of Loans - Every loan application shall state the necessary and pertinent information for its evaluation. It shall also include sufficient data, without it being construed as a limitation, to
expedite the procedure to verify the identity, location, and address, credit history, place of business, sources of income and employment or work of the applicant and of the guarantors or co-signers, as well as the guarantees offered.
The loans granted by cooperatives shall be evidenced by a legitimate collateral note and any other documents that are required by the cooperative, which shall meet the requirements and guarantees required by the Corporation through regulations. The signors of the notes, whether they are members of the cooperative or not, shall be deemed, for all legal effects and purposes, as principals and jointly liable debtors, against whom the cooperative may proceed in its collection efforts, including legal means, against any of them, at its discretion. Any sum of money owed to a cooperative by a partner, or non-partner, on any account, including the payment of service charges, overdrafts, or any other reason, shall be deemed as a contingent liability and shall be recoverable by the cooperative in any court of competent jurisdiction, and be susceptible to the statutory lien provided in subsection
(c) of this Section.
(c) Statutory liens and non-attachable nature of assets. Capital stock, deposits and other assets held by every debtor or guarantor in the cooperative, shall be encumbered by legal means without need of any formality, document, procedure, nor registry up to the limit of all debts contracted or secured by said cooperative, as long as these debts subsist in whole or in part. It is expressly provided that with regard to debts contracted with the cooperative, the lien on all capital stock, deposits and other assets held by debtors in the cooperative is exempted from the requirements for the constitution
of chattel mortgages provided in any other act, including Act No. 208 of August 17, 1995, also known as the "Business Transactions Act," and the "Civil Code of Puerto Rico of 1930," as amended. The express power of the Cooperative, at its full and exclusive discretion and selection, to impute the stock, deposits and other assets of the debtors or guarantors against any debts, commitments and obligations they maintain with the cooperative is also recognized.
It is further provided that said capital shares, deposits and other assets shall not be subject to attachment to settle a debt different to that contracted with the cooperative up to the amount of the obligation contracted with the cooperative up to the amount of the obligation contracted with the cooperative at the moment of sentencing.
(d) Granting credit to members of the Board of Directors, and Executive Officials - Subject to the regulations of the Corporation, the Board of each cooperative shall establish the institutional policy that shall govern with regard to form, the terms and conditions for the granting of loans to the members of the Boards of Directors and executive officers and the employees thereof. It shall likewise establish the procedures for the control and supervision of the loans that are granted to them.
Said institutional policy, as well as the procedures for its implementation, shall establish adequate controls so that the members of the boards of directors, officials and employees shall not participate of the process for the approval, control and supervision of their own loans, nor receive privileges by virtue of
position they hold in the cooperative, and shall establish the sanctions to be imposed for any violation of said institutional policy. The institutional policy may authorize discounts or reasonable concessions for the employees of the cooperative, provided they are consubstantial with similar programs in other financial institutions.
(e) The Corporation shall have the power to define by regulations the maximum number of loans that may be granted to a single borrower. Said limitations shall be comparable to those that apply to depositary institutions that operate in Puerto Rico.
Section 6.04 - Surplus Shares The Board of Directors shall provide for the distribution of the net surplus that has been accrued by the cooperative at the end of each year, after the amortization of accrued losses, if any, followed by the contributions to the indivisible reserve, as required in this Act, and the allowance for possible losses in loans, mandatory and voluntary reserves, as provided in Section 6.07 of this Act. As long as the Cooperative has accrued losses, the distribution of surplus shall not proceed. In those cases that the cooperative shows that it has satisfactorily attended to the causes that provoked the accrued losses, and shows a sustained improvement in its financial, management or operating situation, the Corporation may authorize the deferral of the accrued losses and allow the distribution of a portion of the surplus.
The surplus may be distributed on the basis of the computed reimbursement or refund, taking into consideration the share of the collected interest, or a combination of said reimbursement for shares along with the payment of dividends on paid-up shares not withdrawn at the end of the calendar year, in the proportions and amounts set forth by the Board of
Directors. All distributions of surplus shall be made through accreditation of shares; never in cash.
Any shares that, at the close of the business year of the cooperative have been fully paid-up shall receive a proportional part of the surplus as payment of dividends, which shall be calculated from the first day of the month following the date the payment is made. The reimbursement or refund based on the sponsorship of interest collected shall be in proportion to the interest paid by them on loans during the year.
Section 6.05 - Withdrawal of Deposits and Shares When a member of a cooperative retires voluntarily or is separated from it, he/she shall be paid, after discounting the amount of any debt in the cooperative (including debts contracted as debtor in solidum, warrantor or sponsor, regardless of whether or not personal profit or lucre has been obtained from said loan), the sum of money that said member has paid for shares and deposits, plus the amounts of dividends, cash, patronage and interest duly-earned and accredited up to the date of his/her retirement or expulsion. Said payment shall be made within thirty (30) days following the retirement or separation of the member.
The cooperative may require that the notice of withdrawal of deposits be made thirty (30) days in advance, and that the notice of withdrawal of stock shall be made ninety (90) days in advance.
Section 6.06 - Withdrawal or Transfer of Shares by Members of the Board and of the Committees
The members of the Board and its officials, committee members, executive officers, and members of a cooperative who participate directly in its administration, shall not withdraw nor transfer their shares while they hold office or perform functions in the Cooperative. Any withdrawal or transfer of
shares made by those persons in the six (6) months prior to the date on which the Corporation determines that the solvency or liquidity of the Cooperative is endangered, or on the date the Cooperative decides to use any mechanism authorized by law to safeguard its interests, whichever occurs first, shall be deemed as null. In such case, said persons shall continue to answer to the creditors of the Cooperative, or to the Corporation, or to any other underwriter for the value of the shares that they have withdrawn and transferred.
However, in cases of emergency or extreme need, the members of the Board and its officials, committee-members, executive officials and the members of a cooperative that participate directly in its administration, may withdraw or transfer their shares, with the prior authorization of the Board of Directors. In such case, the members of the Board and its officials, committee members, executive officials and members of a cooperative that participate directly in the administration thereof, shall continue to answer to the creditors of the cooperative, to the Corporation, or to any other insurer, pursuant to what is established above.
Section 6.07- Provision for Possible Losses in Loans, Requirement of Liquidity, Contingency Reserves and Voluntary Reserves
(a) Provision for possible losses in loans. - Every cooperative shall establish a provision for possible loan losses, chargeable to operating income, using a formula based on the real loan loss experience as fixed by the Corporation through regulations.
(b) Minimum liquidity requirement.- Every cooperative shall always maintain a required minimum amount of liquid assets, that shall be computed in proportion to the composition and maturity of its deposits and certificates. The Corporation shall adopt regulations to determine the percent required and the base for the computation
thereof, which shall not be less than fifteen percent (15%) of the sum total of the obligations in deposits and certificates, as these appear on the last day of the month. This minimum liquidity requirement does not imply an additional reserve against the economies of the cooperative.
(c) Contingency Reserves.- The Corporation may require any cooperative to establish and maintain a contingency reserve, chargeable to its net savings, to protect it against any risk or reasonably determinable extraordinary activity whose adverse economic consequences could bring about losses greater than the indivisible accrued or available capital. It may likewise authorize the establishing of this reserve by request of the Board of a cooperative.
(d) Voluntary reserves.- The Board of every cooperative may provide periodic contributions to the voluntary reserves whose creation has been previously approved by the general assembly of members and delegates. Voluntary reserves may be established for any legitimate purpose that shall advance the interests of the cooperative or the Cooperative Movement, including contingencies, investments in $100 %$ owned subsidiaries, investment in second degree financial enterprises and/or cooperative enterprises, institutional growth and development, or for education in cooperative matters and technical and professional training.
Section 6.08 - Tax Exemption
(a) Cooperatives, their subsidiaries or affiliates, as well as the income from all their activities or operations, all their assets, capital, reserves and surpluses, and those of their subsidiaries or affiliates, shall be exempted from all types of taxation on income, property, excise
taxes, patents, or any other tax imposed or subsequently imposed by the Commonwealth of Puerto Rico, or any political subdivision thereof.
(b) All stocks and securities issued by cooperatives and by any of their subsidiaries or affiliates, shall be fully exempted for their total worth, as well as the dividends or interest paid by virtue thereof; all kinds of taxes on income, excises, property taxes, patents, or any other tax imposed or to be imposed in the future by the Commonwealth of Puerto Rico or any political subdivision thereof.
(c) Cooperatives and their subsidiaries or affiliates, shall be exempted from the payment of state or municipal fees, duties or tariffs, including the payment of charges for licenses, patents, permits and registrations; the payment of charges, fees, internal revenue stamps or vouchers related to the granting of all classes of public and private documents, the payment of charges, fees, or internal revenue vouchers with regard to the registration thereof in the Property Registry or any other public registry or government office, and the payment of charges, fees internal revenue stamps or vouchers regarding the issuing of certificates by said registries or any other government office. The cooperatives and their subsidiaries or affiliates shall also be exempted, from the payment of charges, fees, internal revenue stamps or vouchers excise taxes, or tariffs required in the General Court of Justice of Puerto Rico, or by any agency, instrumentality, public corporation of the Commonwealth of Puerto Rico, or any political subdivision thereof.
(d) Exemptions granted under this Section to the subsidiaries or affiliates of cooperatives shall apply as long as said subsidiaries or affiliates are subject to the control of one or more cooperatives.
Section 6.09 - Unclaimed Accounts Unclaimed sums of money and other liquid assets held by a cooperative, or that have not been subject to any type of transaction whatsoever during the five (5) preceding years, shall be transferred to the equity reserve or the indivisible capital item, at the option of the cooperative. For the purposes of this Section, neither the imposition of service fees nor the payment of interest or dividends shall be deemed as a transaction or activity of the account. The cooperative shall publish a notice in its branches and service offices, ninety (90) days prior to the transfer of these liquid assets to the reserves described above, with a list of the accounts subject to be transferred. During said ninetyday period, this list shall be available for review by every member and the general public. Every person who, during the period of ninety (90) days mentioned above, presents attesting evidence of title to one or more accounts identified on the list shall have the right for them to be removed from the list and not be subject to transfer to the capital reserves. After the transfer of an account or other liquid assets to the capital reserve is made, only claims filed no later than two (2) years after the transfer shall be admitted. In such cases, the cooperative may impose administrative charges corresponding to the investigation and analysis of the claim.
Pursuant to these provisions, the cooperatives, their shares and deposits accounts, and their reserves shall be exempted from the provisions of Act No. 36 of July 28, 1989, as amended, known as the "Abandoned and Unclaimed Money and Other Liquid Assets Act."
Section 6.10- Contribution for Education Every cooperative is bound to set aside at least one tenth of one percent $(0.1 %)$ of its total volume of business, for the education and integration of the cooperative movement in Puerto Rico. Within three (3) months following the close of operations of each fiscal year, the cooperatives shall determine the amount of said computation up to a maximum of four thousand $(4,000)$ dollars. Every cooperative whose total volume of business exceeds four million $(4,000,000)$ dollars a year, shall be bound to pay an additional amount of five percent (5%) of its annual net surplus, up to a maximum of six thousand $(6,000)$ additional dollars. This fund shall be contributed to the Cooperative League, which shall use it for education, integration and advisory purposes. For the purposes of this Section, the total volume of business shall be computed by adding the total of the loans granted by the cooperative at the close of business, plus the total income from interests in savings and investments as of said date.
Within the month following the close of operations of each fiscal year of the cooperative, it shall have deposited in the Cooperative League, the total amounts it must have paid for that year, that are due. The deposits shall be made quarterly, with each partial payment estimated at one fourth of the payment corresponding to the preceding year The pertinent adjustment shall be made at the close of operations of the year, and in the event of an overpayment, it shall be credited to the estimated payment for the following first trimester.
Section 7.01- Limits to Mergers or Consolidations
No cooperative shall merge or consolidate with another cooperative, except as provided in Sections 7.02 and 8.07 of this Act. Cooperatives shall not sell their assets nor acquire obligations or debts insurable by the Corporation, except in the normal course of business, with the prior authorization of the Corporation and pursuant to what is established by regulations.
Section 7.02- Merger or Voluntary Consolidation Two or more cooperatives organized pursuant to this Act, may voluntarily merge or consolidate, with the approval of the assembly of members or delegates, as applicable, with the prior approval of the Corporation, and according to the procedure established by regulations or by administrative determination. When one or more cooperatives merge, one of them shall grant its name, assets, and other properties and rights to the other cooperative, which shall be the one that shall continue to exist as a recognized juridical entity. When two or more cooperatives merge, they shall form a new cooperative entity different from the existing ones.
No voluntary merger or consolidation transaction, sale of assets and/or liabilities, nor any other similar transaction or agreement with institutions that are not cooperatives, shall be allowed.
Section 7.02 - Mergers or Voluntary Consolidation Two or more cooperatives organized pursuant to this Act may merge or consolidate voluntarily through the approval of the assembly of members or delegates, as applicable, with the prior authorization of the Corporation, and pursuant to the procedure established through regulations or by administrative determination. When one or more cooperatives merge, one of them shall cede the name, assets and other goods and rights to the other cooperative, which shall remain in existence as the recognized juridical entity. When two or more
cooperatives consolidate, they shall form a new cooperative entity different from the ones existing before.
No voluntary fusion or consolidation transaction, sale of assets and/or liabilities, nor any other similar transaction or agreement with institutions that are not cooperatives, shall be made.
Section 7.03- Voluntary Dissolution of Cooperatives Any cooperative whose dissolution does not require disbursements by the Corporation under the shares and deposits insurance, may be voluntarily dissolved through the approval of the corresponding general assembly of members or the general assembly of delegates, following the procedure established by to such effects by the Corporation. When the dissolution requires disbursements by the Corporation, the procedure that is established Section 8.11 of this Act shall be observed.
Section 8.01 - Cooperative Fiscal Year The fiscal year of every cooperative shall be established in the incorporation clauses and in the general regulations thereof.
Section 8.02- Notices and Calls to Sessions In every case that the cooperative notifies or calls its members to session, said notice or call may be made by:
(a) remitting it by mail to the address found in the records of the cooperative, or
(b) publication in a newspaper of general circulation, along with the posting of clearly-visible posters in the branches and service offices of the cooperative.
Cooperatives may also use electronic or radio broadcasting means, as supplementary mechanisms, in addition to those described above.
Section 8.03- Reports Cooperatives shall submit all such reports that the Corporation requires, with such frequency, detail, and in the form required through its orders, or regulations. The President and the Secretary of the Board shall certify that the annual financial statements of the cooperative are correct, according to their best knowledge and belief, and that they were examined and discussed by the Board. The statements shall be filed at the Corporation no later than one hundred and twenty (120) days following the termination date of the fiscal year of the cooperative.
Every cooperative shall keep a detailed accounting of its operations and activities based on generally-accepted public accounting principles, except in those cases otherwise provided in this Act. Furthermore, the Corporation may require the cooperatives to submit reports on its internal controls, attested by certified public accountants.
Section 8.04 - Adjudicative Procedures When by provision of this Act or its regulations, the Cooperative must adjudicate a complaint presented by any cooperative, its board of directors, committees and executive officials, or by any partner or depositor of a cooperative, for violations of this Act, Act. No. 114 of August 17, 2001, or the regulations adopted thereby, or for violations to the general regulations of the cooperative, the Corporation, on its own initiative, or by petition of any of the parties, shall submit the matter to the consideration of an arbitration panel composed of three (3) arbitrators, one (1) selected by each party in the controversy, and the third selected by mutual agreement by the two first arbiters. In the event there are more than two parties in the controversy,
additional arbitrators may be designated. In the event the panel results in an even number of arbitrators, they shall designate an additional arbitrator by mutual agreement to ensure an uneven number. The Corporation shall adopt rules that shall govern the arbitration procedure, including, among others, the eligibility requirements of the arbitrators, rules of procedure to be applied, the corresponding charges and fees to defray the cost of the arbitration procedure, and the assumption of the costs and expenses by the parties. The arbitration panels shall apply the existing standards and shall not generate interpretations or opinions that imply the adoption of public policy. In order to assure a correct application of juridical and regulatory norms, the Corporation shall provide technical assistance to the arbitration panels. The party affected by the decision of the arbitration panel, may request judicial review of said decision before the Court of First Instance in which the main office of the cooperative is located, within fifteen (15) days following the date the decision of the panel is served.
In those cases that the Corporation determines that the public interest requires a direct adjudication, the regulatory procedures established by the Corporation pursuant to Act No. 170 of August 12, 1988, as amended, known as the "Uniform Administrative Procedures Act of the Commonwealth of Puerto Rico", shall be observed.
Section 8.05- Inspections, Auditors and Examinations Every cooperative covered by this Act, shall submit audited financial statements annually to the Cooperative Development Administration, and the Puerto Rico Cooperatives League, within one hundred and twenty (120) days following the close of operations of its fiscal year. The audited financial statements of the cooperatives remitted to the abovementioned entities shall be available to the general public, and may be copied upon payment of fees. The
cooperative shall also remit a copy of the letter issued by the external auditors, to the Corporation, within the same term.
Section 8.06- Public Policy for the Support and Rehabilitation of Cooperatives
It is the public policy of the Commonwealth to support and propitiate the development of every cooperative. Pursuant thereto, the Corporation shall seek to identify in a timely manner, any operating, financial or managerial weakness that requires corrective action. Once identified, the Corporation shall ascertain that the cooperative shall orderly and efficiently put into effect the necessary corrective measures that shall propitiate its fostering and development for which it may use the administrative and regulatory measures provided in Act No. 114 of August 17, 2001, in this Act, and in the special Acts that are applicable.
The primary responsibility of the executive or management bodies of the cooperative shall be the implementation of the corrective measures provided by the Corporation, without impairing the powers of the corporation to bring charges and the removal of officials, directors and employees, pursuant to Section 19 of Act No. 114 of August 17, 2001 and Section 5.24 of this Act. In those cases that the protection of the members and the depositors, the continuity or integrity of the operations of the cooperative, or the protection of the insurance fund of the Corporation is required, it may adopt the necessary regulatory measures provided in Act No. 114 of August 17, 2001, in this Act, and in the special laws that are applicable, leading to the rehabilitation and support of the cooperative.
Before proceeding to decree a merger, consolidation, sale of assets and the assumption of liabilities, or the dissolution and liquidation of a cooperative, the Corporation shall be required, through the affirmative two
thirds (2/3) vote of its Board of Directors, to make an express determination that there is no possibility of rehabilitating the cooperative.
Section 8.07- Mandatory merger or Consolidation Before proceeding to decree the mandatory merger or consolidation, of a cooperative when the Corporation, through the two thirds (2/3) vote of its Board of Directors, makes an express determination that there is no possibility of rehabilitating the cooperative, and the merger or consolidation and the share or deposit insurance be approved. At no time shall the cooperative that is proposed to be the recipient, be bound to accept the merger.
No transaction for the merger, consolidation, sale of assets or liabilities, nor any other similar transaction or agreement with institutions that are not cooperatives, shall be performed.
Section 8.08- Receivership
(a) (1) The Corporation may direct that a cooperative be placed under emergency receivership or management under receivership, when, after an audit, investigation, examination or inspection, it is shown that the cooperative is undergoing the situations provided in Act No. 114 of August 17, 2001. (2) The Corporation shall hold a hearing before issuing an order to place a cooperative under receivership. Nevertheless, the Corporation shall issue a provisional order decreeing the receivership without need to hold a hearing, when in its judgment, the condition of the cooperative is of such a nature that it is causing or can cause irreparable damage to its interests, to that of the members, or of the persons with interests or deposits in it. When the Corporation issues an emergency receivership order, it shall hold an administrative
hearing within the ten (10) days following the date of notice thereof, to determine if it is made permanent or is revoked. (3) When the Corporation orders the emergency management or receivership of an ensured cooperative, the Corporation shall act as an interim manager or trustee, assuming the powers and functions of management or of the boards of directors and operating the institution pursuant to the regulations adopted to such effect. The Corporation shall perform its functions as trustee through its officials, or through a contracted third party. In every case, the official or agent representing the corporation shall be a person of unimpeachable moral integrity and repute, with the managerial, financial, accounting and business knowledge that allow him/her to perform a provisional administrative or rehabilitation process in the shortest possible term. (4) The emergency management shall not exceed sixty (60) days, which term may be extended by the Board of Directors of the Corporation. In the event the emergency management should exceed the term of one hundred and eighty (180) days, the intervention by the Corporation in the cooperative shall be deemed as a receivership, subject to the provisions of subsection
(b) of this Section.
(b) of this Section (1) Every receivership shall have as its purpose and objective the protection and the immediate stability of the cooperative and the prompt installation of new directive and managerial bodies. During receivership, the Corporation shall take immediate measures as required to safeguard the integrity and stability of the institution. The official or representative agent of the Corporation, designated as
the agent of the trustee, shall submit a working plan to the Board of Directors of the Corporation that shall contemplate the following, as a minimum:
(i) special measures adopted by the trustee; (ii) measures pending implementation; (iii) procedure to designate new directing and management bodies; (iv) financial rehabilitation plan; (iv) operating agreement proposal or memorandum of understanding, and (vi) financial and technical support that the cooperative shall receive by other first, second, or third degree cooperative entities. (2) The agent of the trustee shall present a working plan to the Board of the Corporation within a term that shall not exceed one hundred and twenty (120) days after the trusteeship is established. If there are special circumstances, this term can be extended by the Board of the Corporation for an additional term of sixty (60) days. The working plan shall not contemplate any contracting, or the imposition or assumption of extraordinary expenses that do not correspond to the regular course of business of the cooperative, unless they are approved by two thirds (2/3) of the Board of Directors of the Corporation, or are subject to ratification by a majority of the new Board of Directors of the Cooperative to be designated, as provided below. Once approved by the Board of the Corporation, the agent of the trustee shall proceed to implement it. (3) The designation of new boards of directors shall take effect no later than one hundred and eighty (180) days after the working plan is approved. The designation of new Boards of Directors shall be
carried out by holding a special assembly of members or of delegates, as the case may be, called and directed by the Corporation. The election of the new members of the Boards of Directors shall provide for the staggering of terms as required in this Act. The new Boards of Directors shall assume their functions thirty (30) days after their selection. During said period, the new boards of directors shall receive all the information regarding the financial rehabilitation plan, and the operating agreement or memorandum of understanding that shall govern the operations of the cooperative. As of that date, the trusteeship shall be deemed to have concluded.
Section 8.09- Suspension or Revocation of Permits and Cancellation of Certificate.
The Corporation may temporarily suspend or permanently revoke the operating permit of any cooperative and require the Secretary of State to cancel its registration certificate when:
(a) the total number of members of a cooperative is reduced to less than double the number of the of the elected bodies;
(b) the permit to operate as a cooperative entity is obtained through fraud or error;
(c) the cooperative fails to function and operate;
(d) it is proved, to the satisfaction of the Corporation, that the cooperative is functioning with an illegal purpose, or in violation of the provisions of this Act or of the regulations adopted thereby, after having been duly notified of it by the Corporation;
(e) the cooperative expressly requests it of the Corporation and it deems it is convenient after obtaining the necessary evidence as determined;
(f) refuses to file certified statements on the total shares and deposits as required by the Corporation;
(g) refuses to pay insurance premiums, capital shares or special premiums required by the Corporation through its laws and regulations; or
(h) refuses to correct any error or omission of the certified statements required by the Corporation, or refuses to pay the amounts owed for annual or special premiums, surcharges and interest, or refuses to deposit the capital contribution required by law or to pay any administrative fine that has been imposed on it.
Before issuing an order pursuant to what is provided in this Section, the Corporation shall take adequate measures to protect the interests of the members of the Cooperative and of the insurance fund of the Corporation. When the Corporation ascertains the existence of any of the causes established above, it shall notify the Board of the cooperative in question, advising it of its intention of temporarily suspending, or permanently revoking the operating permit of the cooperative. Said notice shall state the grounds on which it bases its determination.
In the cases under subsections
(a) ,
(b) ,
(c) , or
(d) of this Section, the Corporation shall fix a term of not less than twenty (20) days for the Board of the cooperative to evaluate the charges and submit a writ, stating the grounds for which the permit to operate as a cooperative entity should not be suspended or revoked. The Corporation shall consider the grounds presented within thirty (30) days following its receipt, and when it deems that the charges are rectifiable, it may grant the cooperative a term to rectify them, establishing the manner it must conduct its operations during said term. When, in the judgment of the Corporation, the grounds presented by the Board are not sufficient, the Corporation shall permanently revoke the
operating permit of the cooperative, and shall request the Secretary of State to cancel its registration certificate.
When the registration certificate of a cooperative is permanently cancelled, the Corporation shall notify all the members by publishing two (2) notices in at least two (2) daily newspapers, within the two (2) weeks following the date of cancellation of the registration, or in writing to the last known address. The cooperatives whose registration certificate is cancelled permanently, shall desist from participating of all the privileges they hold as a cooperative entity as of the date the notices required in this Section are published. This provision shall not affect the existence of the assets and liabilities of the cooperative, which shall remain in full force and effect as if it continues to enjoy its authorization to operate as a cooperative entity, until they are duly-liquidated by the Corporation. Nor shall it deprive the members of the cooperative of the shares and deposit insurance guarantees of the Corporation.
Section 8.10- Grounds for the Dissolution of Cooperatives The Corporation may direct the dissolution of a cooperative when:
(a) it is in danger of financial insolvency;
(b) it is confirmed that the real value of the shares has dropped by more than five percent (5%) of their book value, after an economic study to such effect;
(c) it fails to comply with the necessary requirements to avail itself of the shares and deposits insurance of the Corporation; and
(d) it fails to pay the regular or special premiums to the Corporation, or deposit the capital contribution required by law.
Before proceeding to decree the dissolution of a cooperative, it shall be required for the Corporation, through the affirmative vote of two thirds (2/3)
of its Board of Directors, to make an express determination that the cooperative has no possibility of being rehabilitated.
Section 8.11- Procedure for the Dissolution Decreed by the Corporation The following procedure shall be observed in every action to dissolve a cooperative:
(a) Liquidating trustee. - When the Corporation orders an ensured cooperative to be dissolved, it shall act as liquidating trustee through officials of the Corporation itself, or through a contracted third party. In every case, the official or agent representing the Corporation shall be a person of integrity and unimpeachable moral repute who has the managerial, financial accounting and business knowledge that qualify him/her to perform the liquidation process that shall maximize the yield of the liquidation procedure. Any designation of an agent in representation of the Corporation for the liquidation shall be evaluated by the Board of Directors of the Corporation.
(b) Notice of Dissolution. - The Corporation shall notify the dissolution of the cooperative, through the publication of a notice in at least one (1) widely-circulated daily newspaper.
(c) Assets of the Cooperative. - The liquidating trustee shall convert the assets of the cooperative being liquidated, into cash and shall initiate the claims that rightfully proceed; shall pay its debts pursuant to the procedure established in subsection
(e) of this Section, and shall distribute the remainder of said assets, if any, in the corresponding manner. It shall also notify its known creditors of the fact of the dissolution of the cooperative at the moment the notice of its dissolution is published.
(d) Claims and action to declare void - Any partner or person who has a claim against a cooperative that is engaged in the process of liquidation, must file it before the liquidating trustee within ninety (90) days following the date of publication of the notice of dissolution. Likewise, any person who has the intention of filing a lawsuit with the purpose of impeding or annulling the procedure to liquidate a Cooperative, shall file the corresponding suit before the Court of First Instance of his/her place of residence, within thirty (30) days following the date of publication of the notice of dissolution. The petitioner shall notify the Corporation of said action, with a copy of the petition for annulment.
(e) Order to execute the liquidation and distribution of assets. -
In every case of dissolution of a cooperative, its assets shall be liquidated, and distributed among the following categories of payment, or creditors, in the following order of priority as indicated below, and after the term fixed in this Act for the filing of all claims: (1) expenses incurred in the liquidation procedure; (2) insured shares and deposits; (3) repayment to the Corporation for amounts it may have paid to insured members and depositors; and (4) obligations and deposits of members, depositors and uninsured creditors.
When, after totally paying a preceding category, the remaining funds are not sufficient to totally pay the creditors of the next category, the available amount shall be distributed pro rata among the creditors of the category to be paid. The payment of ensured accounts must be made as soon as possible.
(f) Right of subrogation.- Once the liquidation of an insured cooperative has been decreed, the Corporation shall subrogate the rights that the members, depositors or the cooperative itself may have against said cooperative, for the sum it has paid to them, or the rights that the members, depositors or the cooperative proper, may have against the members of the board of directors or the executive officials for any violations of their fiduciary duties or for their negligent or culpable acts that have generated losses to the cooperative or to the Corporation.
The Corporation shall withhold from the amount that must be paid to the members and depositors of the cooperative, the amounts needed to answer for the payment of any obligation that is not subject to compensation, that the member or depositor may have with the cooperative.
The Corporation, in its capacity as liquidator of the ensured cooperative, shall deposit to the accounts of the Corporation the amount of the assets converted into cash that it is entitled to receive for the fact of having subrogated itself in the claims of the members and depositors of the cooperative. After all the assets are converted into cash, and the payments described in subsection
(e) of this Section are made, any remainder shall be distributed among all the members.
(g) Liquidation term and final report.- The liquidating trustee shall conclude the entire dissolution procedure within the term stipulated with the Corporation. As soon as the liquidating trustee concludes his/her duties and responsibilities, he/she shall render a final report,
which shall be attested before a notary public, and the original and two (2) copies of the report shall be delivered to the Corporation.
(h) Unclaimed shares - In those cases that the persons entitled to receive a share of the liquidation cannot be located, or when they have not claimed their right, the Corporation shall withhold the corresponding amounts, establishing the necessary reserves for a period that shall not exceed five (5) years, counting from the date of the notice of liquidation provided in Section 8.11(b) of this Act, or ninety (90) days counting from the delivery of the final report of the liquidating trustee, whichever occurs first.
(i) Certificate of dissolution. - As soon as the Corporation approves the final report of the liquidating trustee, it shall notify the Secretary of State of Puerto Rico, who shall proceed to register it and issue the certificate of dissolution of the cooperative. The Corporation shall, in turn, cancel the permit for the cooperative to function as such.
The Corporation shall be the custodian of the books and documents of the cooperative and the documents it deems pertinent, for a period of not less than three (3) years, as of the date of cancellation of the certificate of registration.
Section 9.01- Exclusive Use of the Name "Savings and Credit Union"
(a) Any natural or juridical person other than an association organized and registered pursuant to the provisions of this Act, is forbidden to use or be identified under the name of "Savings and Credit Union." It is also forbidden for any person, natural or juridical, other than a recognized cooperative entity, to use as a name, trade name, mark or designation of itself or its products, goods or services, the term
"cooperative" or "COOP" For the purposes of this Section, the following shall be deemed as a recognized cooperative entity exempted from this restriction: (1) Cooperative League of Puerto Rico; (2) every cooperative insurer, duly organized and authorized under Chapter 34 of Act No. 77 of June 19, 1957, as amended, known as the Insurance Code of Puerto Rico; (3) the Cooperative Bank of Puerto Rico; (4) every entity organized and registered pursuant to the provisions of Act No. 50 of August 4, 1994, known as the "General Cooperative Unions Act of Puerto Rico"; and (5) every entity organized and registered pursuant to the provisions of this Act, including non-profit corporations, one hundred percent (100%) controlled by them, and the affiliates, subsidiaries, and cooperative enterprises contemplated in Section 2.06 of this Act.
(b) Any person who violates the provisions of this Section shall incur a felony, and upon conviction thereof, shall be sanctioned with a penalty of imprisonment for a fixed term of one (1) year or a maximum fine of one thousand $(1,000)$ dollars, or both penalties, at the discretion of the Court.
Section 9.02 - Restrictions to the Granting of Loans to Profitable Juridical Entities-
Cooperatives shall not grant loans to lucrative juridical entities, corporations, partnerships, associations or private organizations, except in the case of business loans to entities that are small and medium-size businesses controlled by natural persons that are members of the cooperative, or in the case of projects, economic sectors or activities of high public interest, or that
have the potential of generating new jobs. The Corporation is empowered to direct, through administrative decision or by regulations, the eligibility of small and medium-size business persons, such loans, projects, economic sectors or activities, pursuant to the provisions of this Section. Cooperatives may grant and offer to these entities all those loans and services permitted by this Act, including those described in Sections 2.02 and 2.04, without the limitations provided in Section 2.03.
Any cooperative that violates what is established in this Section or in the regulations adopted thereby, shall be subject to the imposition by the Corporation, of an administrative fine not greater than five thousand $(5,000)$ dollars, for any violation of this Section.
Section 9.03 - Administrative Fines -
(a) The Corporation may impose an administrative fine of not more than five thousand $(5,000)$ dollars, on any cooperative that incurs violations of the provisions of this Act or the regulations adopted thereby, or that violates the resolutions or orders, and on any member of the boards of directors, or any executive official or employee thereof, that is responsible for said violation,
(b) The Corporation may impose administrative fines of up to one hundred (100) dollars a day on any cooperative that fails to render any report required by the Corporation.
Section 9.04 - Liability for Violations of the Act It shall be understood that any violation of the provisions of this Act incurred by a cooperative, is also committed by the official or employee who is liable according to his/her obligations, pursuant to the regulations, policies, and procedures of the cooperative. If no such liability has been expressly assigned to any official or employee of a cooperative through regulations,
policies and procedures, all the members of the Board of Directors, and of the committees of the cooperative shall be liable, unless said member proves that he/she had no knowledge of it, or that he/she made every reasonable effort, and took measures to prevent that the violation in question would be incurred. Continuing to commit any act or omission that constitutes a violation of the provisions of this Act shall be deemed to be a new offense for each subsequent week that the commission or omission in question persists.
Section 9.05 - Felonies
(a) Every member of the Board of Directors, the committees, and every executive official, employee or agent of a cooperative, shall incur a felony and upon conviction, shall be punished by a penalty of incarceration for a fixed term of six (6) years, that:
any loan, or the purchase of discount of any document, note, money order, check, or bill of exchange from any cooperative; or 4. receives any gain for the rendering of any service customarily rendered by the cooperative to the person, if he/she meets the requirements stipulated by it.
(b) Likewise, any person shall incur a felony, and upon conviction, shall be sanctioned by imprisonment for a fixed term of six (6) years, who:
(c) If there were aggravating circumstances in one or more of the above acts, the fixed penalty thus established may be increased up to a maximum of ten (10) years; if there were mitigating circumstances, it could be reduced to a minimum of four (4) years. The Court may impose the penalty of restitution, in addition to the established penalty of imprisonment, in any of the modalities indicated above, or both penalties, at its discretion.
(d) Any juridical person that is not a cooperative, that attempts to control, limit, influence, or otherwise illegally interfere with the powers, faculties and actions of the cooperatives organized pursuant to this Act, shall incur a felony, and upon conviction thereof shall be punished with a minimum fine of ten thousand $(10,000)$ dollars, or
suspension of its incorporation or organization certificate for a minimum term of one (1) year, or both penalties, at the discretion of the Court.
Section 9.06 - Acts Against the Funds of Cooperatives- Any Board member, committee member, official, employee or agent of a cooperative, and any other person in charge of receiving, keeping, transferring, or disbursing cooperative funds, who performs one or more of the following acts, shall be punished with a penalty of imprisonment for a fixed term of eight (8) years:
(a) appropriates them, in whole or in part, without legal authority, for his/her own benefit or that of another person;
(b) lends them, in whole or in part, or speculates with them or uses them for any purpose not authorized by this Act;
(c) does not keep them in his/her power until they are disbursed or delivered as authorized by Law;
(d) illegally deposits all or part of them in any cooperative, bank or financial institution, or in the power of another person;
(e) keeps any false account or makes a false entry of said funds, or that is related thereto;
(f) alters, forges, hides, destroys or strikes out any account or document that is related thereto;
(g) refuses or fails to pay on presentation, any draft, order of payment, or warrant issued by competent authority against the funds in his/her power;
(h) fails to transfer the same, in those cases that said transfer is demanded, by law or regulations;
(i) fails or refuses to deliver any amount of money to any official or other person authorized by law to receive it, to whom he/she is legally bound to deliver it;
(j) exchanges or converts the funds into cash, paper or other current coin or negotiable instrument, without legal authority for it; or
(k) neglects or fails to keep or disburse the funds in the form established in this Act or its regulations.
Any person who is not a member of the Board, of the committees, or an executive official, employee or agent of a cooperative, that is guilty of one or more of the acts prohibited in this Section, regardless of whether or not personal lucre was obtained, shall be punished with the penalty provided herein.
Section 9.07- Injurious Information Any person who knowingly and maliciously, makes, circulates, or transmits any statement, rumor or written, printed or spoken indication, that directly or indirectly results in the discredit of the institution, its directors, or its executive officials, or that affects the solvency or liquidity of a savings and credit cooperative, or that counsels, assists, procures or induces another person or entity, to originate, transmit, or circulate any statement or rumor of such nature, shall be guilty of a felony, and upon conviction thereof, shall be sanctioned with a fine of not less than one thousand $(1,000)$ dollars, or imprisonment for a term of not more than five (5) years, or both penalties, at the discretion of the Court. Provided, that the true verbal or written statements issued for the record by the members of the cooperative, in the course of the regular and special assemblies of the institution, shall not be deemed to violate the provisions of this Section.
Section 9.08- Special Prosecutor In every case that the Corporation has grounds to believe that any partner, member of the boards of directors, executive official of a cooperative or any other person has incurred any act that constitutes an offense pursuant to this Act, or Act No. 15 of July 22, 1974, as amended, known as the Penal Code of Puerto Rico, or any other law that applies to cooperatives, shall request the Secretary of Justice to direct that a special investigation be carried out for such purpose. The Secretary of Justice shall designate the prosecutor who shall be in charge of said investigation within five (5) days following receipt of the request.
Section 9.09- Cooperatives Investigation Fund The administrative fines collected by virtue of this Act shall be covered into the general fund of the Corporation.
Section 10.01- Duties
(a) The members of the Boards of Directors of a cooperative shall be subject to a fiduciary duty towards the cooperative. This fiduciary duty includes the duty of diligence and the duty of loyalty to the cooperative, as well as the duty to watch over and care as a good paterfamilias of the property and operations of the cooperative, as well as the assets, shares and deposits of the members and depositors of the institution.
(b) The members of the Board of Directors, delegates, and employees of a cooperative shall not incur direct or indirect conflicts of interest with regard to the cooperative. Every member of the Board of
Directors, delegate and employee of the cooperative shall be subject to the following general ethical constraints:
The regulations, orders, agreements, administrative procedures, contracts and other actions of the Corporation and the Commissioner of Financial Institutions initiated, approved or adopted prior to the approval of this Act shall continue to be in effect until they are modified or repealed by the Corporation pursuant to the provisions of this Act.
Section 11.02- Procedures Initiated Prior to the Approval of this Act. Every procedure for the organization of a cooperative and any action, claim or pending action, before the Commissioner of Financial Institutions or before the Corporation or before any Court at the date of approval of this Act,
initiated pursuant to the provisions of Act No. 1 of June 15, 1973, as amended, or pursuant to the provisions of Act No. 6 of January 15, 1990, as amended, shall continue to be handled until its determination, or final and binding resolution, pursuant to the laws and regulations in effect as of the date said procedures, actions or resolutions have been presented or initiated.
Section 11.03- Other Applicable Laws Act No. 50 of August 4, 1994, known as the "General Cooperative Associations of Puerto Rico Act," as well as any successor statute of said Act shall be supplementary to this Act and its provisions, as well as the regulations adopted by virtue thereof shall be applicable to the savings and credit cooperatives in the measure that they are not in conflict with the provisions of this Act.
Section 11.04- Repealing Clause Act No. 6 of January 15, 1990, as amended, known as the "Cooperative Savings and Credit Unions Act of 1989," is hereby repealed, as well as any successor statute of said Act shall be supplementary to this Act and its provisions and the regulations adopted by virtue thereof, shall apply to the savings and credit cooperatives as long as they are not in conflict with the provisions of this Act.
Section 11.05- Severability If any provision of this Act were declared unconstitutional in whole or in part by a court of competent jurisdiction, the judgment issued shall not affect nor invalidate the remainder of this Act and its effect shall be limited to the clause, paragraph, section or part declared unconstitutional,
Section 11.06- Effectiveness This Act shall take effect immediately after its approval.
I hereby certify to the Secretary of State that the following Act No. 255 (S.B. 1370) of the $4^{ ext {th }}$ Session of the $14^{ ext {th }}$ Legislature of Puerto Rico:
AN ACT to adopt a new "Cooperative Savings and Credit Unions Act of 2002"; and repeal Act No. 6 of January 15, 1990, as amended, known as the "Cooperative Savings and Credit Union Act of 1989," has been translated from Spanish to English and that the English version is correct.
In San Juan, Puerto Rico, today $22^{ ext {nd }}$ of December of 2004.
Elba Rosa Rodríguez-Fuentes Director
112