Deadlocked Board

Source: Adrian J. Adams Esq. 

QUESTION: Upon a resignation, can you tell me how a new director is chosen when the appointment process is tied 3-3 with the remaining board members?

ANSWER: If they can’t agree on a replacement, the board can put the seat up for special election. Only once have I had a board so thoroughly deadlocked that they could not agree on anything. It completely paralyzed operations.

Petition. When that happens, the Corporations Code provides that any director or members holding not less than 33 1/3 percent of the voting power may petition the court appoint a provisional (i.e., temporary) director to break the deadlock. (Corp. Code §7225(a).) The petition is fairly straightforward and is given priority by the courts. If unopposed, the appointment can be done within 30-60 days, depending on the court’s schedule.

Powers & Compensation. A provisional director has all the rights and powers of a director until the deadlock is broken or until removed by an order of the court or by approval of a majority of the membership. The director is entitled to compensation as determined by the court unless otherwise agreed with the association. (Corp. Code §7225(d).) Either way, the association picks up the tab.

RECOMMENDATION: The membership should pressure the board for a special election. It avoids the expense of a provisional director.