No one wants to need a provisional director who can settle a disagreement between conflicted parties, but sometimes they are simply a necessity. If the time comes for a provisional director to get involved in a business-related conflict, this individual will evaluate complex circumstances and make a decision that benefits all stakeholders as fairly as possible.
What is a Provisional Director?
A provisional director is an individual who is appointed by either a Board of Directors or a judge in order to resolve conflicts between directors sitting on a corporate board within an organization or company. Although provisional directors are generally seen as a last resort, the role they play is incredibly valuable when a conflict seems unresolvable.
When Does a Provisional Director Get Involved?
Provisional directors remedy deadlocked boards of directors or business partners. When these parties cannot come to an agreement about how to move forward about the day-to-day and long-term business of their company or organization, a judge may appoint a provisional director.
Court-appointed provisional directors are authorized by California Corporations Code section 308 and such appointments arise under two typical scenarios.
The first situation occurs when the business is unable to function based on the current conflict. For example, if the conflict is unresolvable to the point that day-to-day business can no longer be conducted to its advantage, a provisional director can settle disputes in order to get things back on track. The same is true if there is a confirmable risk or danger that the company’s property and business will be impaired or lost because of the conflict.
The second situation occurs when a company’s shareholders cannot successfully elect directors at their annual meeting. If two contending factions hold an equal number of shares, shareholders with at least 50% of the voting power may petition the court to appoint one or more provisional directors.
Differences & Similarities Between Provisional Directors & Receivers
There are some similarities between provisional directors and receivers,
One of the key similarities is that both positions are required to be neutral third parties. According to Section 308(c): “A provisional director shall be an impartial person, who is neither a member nor a creditor of the corporation, nor related by consar affinity within the third degree according to the common law to any of the other directors of the corporation or to any judge or the which such provisional director is appointed.”
However, receivers and provisional directors have different responsibilities and limitations. A receiver generally has far more authority to make decisions, sell assets, hire contractors, and more.
Provisional directors, on the other hand, are limited to their role as a director on the corporate board--having no more or no less duties and powers as any other director. Further, their role may only last for one board meeting, as opposed to a typical receiver assignment that could last several months or years.
Provisional directors tend to be less costly and intrusive than a receivership.
Contact Griswold Law for More Information About Provisional Directors
Do you need more information about how provisional directors work?
Perhaps you are a shareholder in a company where there is an operational dispute, or you anticipate a possible deadlock among your Board of Directors. If so, it helps to be prepared for what it will be like to work with a provisional director.
We can help you know how to prepare for this possibility. How can you be confident in the provisional director’s decisions? How do you know if you should request a provisional director, and what does that process look like?
We are happy to help! Contact us today with your questions and concerns about provisional director appointments.
