In Re TransPerfect Global, Inc., C.A. No. 9700-CB (Del. Ch. Dec. 3, 2014). This Delaware Court of Chancery decision denied a request for an interim custodian for a deadlocked board of two persons, in a company that was also deadlocked at the stockholder level. Even though this was an interim decision prior to trial, it demonstrates that even when a deadlock is present, the appointment of a custodian under DGCL Section 226 is not without challenges. The Court explained the statutory basis and applicable case law that establishes the prerequisites for this summary proceeding form of corporate litigation as follows:
Section 226(a)(2) of the Delaware General Corporation Law provides for the appointment of a custodian to resolve a deadlock when:
The business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division . . . . 8
Elting acknowledges that, because she seeks the appointment of an interim custodian until a trial can be held, she also must demonstrate that the “appointment is urgently needed for the immediate protection of the corporation.”
Moore v. C.H.M. Enters., Inc., 1983 WL 102620, at *2 (Del. Ch. Nov. 9, 1983)(emphasis added).
See generally Millien v. Popescu, C.A. No. 8670-VCN (Del. Ch. Feb. 19, 2014) at n.17 (appointment of a custodian is discretionary despite a deadlock, and court would have rejected appointment of custodian after trial, even if it had found a deadlock, based on the court’s finding, in essence, of mere stubbornness on the part of one of the two directors).
A free graphic of a different kind of custodian is provided for your entertainment.