Deadlocked Board. If an association has an even number of directors who are equally divided and cannot agree as to the management of the association's affairs, any director or members holding not less than 33 1/3 percent of the voting power may bring an action to have the court appoint a provisional director to break the deadlock. (Corp. Code § 7225(a).)
Powers & Compensation. A provisional director has all the rights and powers of a director until the deadlock in the board or among members is broken or until such provisional director is removed by order of the court or by approval of a majority of all members. The director shall be entitled to such compensation as shall be fixed by the court unless otherwise agreed with the corporation. (Corp. Code § 7225(d).)
Petition. To seek the appointment of a provisional director, the petitioner states the facts of the dispute why the board is evenly divided and states facts showing that the board can’t resolve the deadlock. The facts should show that the corporate activities can no longer be conducted to advantage or that there is a danger that corporate property, activities, or business will be impaired or lost.
In Re Jamison Steel Corporation, the court held that a provisional director could be appointed when it was shown that the board could not decide on matters after repeated votes. It resulted in incumbent directors holding over in the office. The court stated, “We do not feel that perpetuation of existing policies or incumbent officers in office can be construed as effectively managing corporate affairs.” (In Re Jamison Steel Corp. (1958) 158 Cal.App.2d 27, 38.)
In another case, there was so much dissension from the directors they couldn’t come to any agreements. The court stated this dissension was enough grounds to appoint a provisional director. The court did not need to determine the veracity of the various deadlocked issues, only that the divisiveness was sufficient to necessitate the appointment of a provisional director. (In re Annrhon, Inc. (1993) 17 Cal.App.4th 742, 754.).
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