Using Provisional Corporate Directors to Break a Tie

You’ve taken the time to draft corporate bylaws or other documents to ensure that decisions in your company are made swiftly and efficiently. You’ve taken the time to make sure that if there’s a decision to be made, it can be made. But inevitably, despite all your best laid plans, you find that one day, you have a deadlock. A tie. And suddenly, a major corporate decision can’t be made.

How Ties are Broken

Sometimes bylaws will say that a tie vote on a matter by a board of directors is a loss (the proposal or measure is considered defeated). But other times they don’t. And even if you have an odd number of directors to ensure that ties don’t happen, absences can often lead to tie votes. If those absences are long term, you may find your company unable to move forward on important corporate matters, because of a tie vote.

Provisional Directors

Florida law does allow for a court to appoint a provisional, or temporary director, who is appointed solely for the purpose of breaking your board’s tie or deadlock. This appointed director has to be completely impartial, and cannot be a creditor of the company.

Although a director in your company, this court-appointed temporary director is actually an officer of the court, and will report back to the court on what is happening with the deadlocked matter. Other than that, the director has all the duties rights and powers as any other director, for the term that the provisional director is serving on the board. Any officer of the company can ask the court to clarify or specify exactly what the duties of the temporary director are.

The director can be paid, and the court can order that the company pay the director.

How a Director Gets Appointed

To have a provisional director appointed, all a party needs to show is that there is a deadlock, and the director would help with alleviating the deadlock. You do not need to show that the company is being mismanaged, or that anybody is doing anything wrong.

A provisional director can help your company if you are truly deadlocked. This situation often is helpful in companies where ownership is divided 50-50, or where a board of directors is relatively small, and thus, a temporary vacancy will lead to a tie in an important matter.

Benefits and Drawbacks

Still, a provisional director can often feel like the court is intruding into corporate business, as the director is an officer of the court, and will be privy to your meetings and any workings of the company that may be related to the deadlock.

Additionally, the law does not specify what the qualifications of the provisional director must be. If your company is a technical one, requiring specialized knowledge, or the deadlock concerns a subject that is highly specialized, you may want to request that a provisional director have the background needed to fully understand the issue.

We can help you with your corporate legal issues, whether there is a problem now, or you anticipate one arising in the future. Call the West Palm Beach business litigation lawyers at Pike & Lustig for help today.

Resource:

floridabar.org/the-florida-bar-journal/the-corporate-provisional-director-has-due-process-been-overlooked/