(a) No distribution may be made by a cooperative if, after giving effect to the distribution:

lawyer at desk

Ask a business law question, get an answer ASAP!
Thousands of highly rated, verified business lawyers.
Click here to chat with a lawyer about your rights.

Terms Used In Tennessee Code 43-38-903

  • Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
  • Bylaws: means a written agreement described in §. See Tennessee Code 43-38-103
  • Cooperative: means an association organized under this title conducting business on a cooperative plan as provided under this chapter. See Tennessee Code 43-38-103
  • Distribution: means a direct or indirect transfer of money or other property, except its own membership interests, with or without consideration, or an incurrence or issuance of indebtedness, whether directly or indirectly, including through a guaranty, by a cooperative to or for the benefit of any of its members in respect of membership interests. See Tennessee Code 43-38-103
  • Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
  • Member: means a person or entity reflected on the books of the cooperative as the owner of governance rights of a membership interest of the cooperative and includes patron and nonpatron members. See Tennessee Code 43-38-103
  • Property: includes both personal and real property. See Tennessee Code 1-3-105
  • Recourse: An arrangement in which a bank retains, in form or in substance, any credit risk directly or indirectly associated with an asset it has sold (in accordance with generally accepted accounting principles) that exceeds a pro rata share of the bank's claim on the asset. If a bank has no claim on an asset it has sold, then the retention of any credit risk is recourse. Source: FDIC
(1) The cooperative would not be able to pay its debts as they became due in the normal course of business; or
(2) The cooperative’s total assets would be less than the sum of its total liabilities, plus, unless the articles or bylaws permit otherwise, the amount that would be needed if the cooperative were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of members whose preferential rights are superior to the rights of members receiving the distribution and excluding liabilities for which the recourse of creditors is limited to specified property of the cooperative, except that the fair value of property that is subject to a liability for which the recourse is limited shall be included in the assets of the cooperative only to the extent that the fair value of the property exceeds that liability.
(b) The cooperative may base a determination that a distribution is not prohibited under subsection (a) either on:

(1) Financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances; or
(2) A fair valuation or other method that is reasonable in the circumstances.
(c) The effect of a distribution under subsection (a) is measured as:

(1) The date the distribution is authorized if the payment occurs within four (4) months after the date of authorization; or
(2) The date the payment is made if it occurs more than four (4) months after the date of authorization.
(d) If indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness is treated as a distribution, the effect of which is measured on the date the payment is actually made.
(e) A cooperative’s indebtedness to a member incurred by reason of a distribution made in accordance with this section is at parity with the cooperative’s indebtedness to its general unsecured creditors, except to the extent subordinated by agreement and except to the extent provided otherwise by § 43-38-1009(c).
  Previous section
Next section  
 Part 9 Contents