October 14, 2019

October 14, 2019

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Provisional Directors And The Third Degree

Monday's post concerned the appointment of one or more provisional directors pursuant to California Corporations Code Section 308.  The statute requires that a provisional director be an "impartial person".  In addition, the appointee must not be any of the following:

  • a shareholder of the corporation,
  • a creditor of the corporation, or
  • related by consanguinity or affinity within the third degree according to the common law to any of the other directors of the corporation or to any judge of the court by which such provisional director is appointed.

These all sound reasonable enough but the last requirement may be more difficult to confirm in practice. 

The reference to the "any judge of the court by which such provisional director is appointed" is decidedly unclear.  The California Constitution (Art. VI, § 4) provides that in each court there is a superior court having one or more judges.  Populous counties in California have several courthouses.  This leads to several possible interpretations of the statute.  The reference might be to all judges sitting on the superior court statewide.  It might also be plausibly construed to refer to the judges sitting in the same county or courthouse as the judge making the appointment.  

Perhaps a bigger problem is presented by the consanguinity/affinity requirement.  A degree of consanguinity generally refers to the number of generations between individuals.  Furthermore, degrees of consanguinity may be either lineal or collateral.  Although California has enacted a statute defining how to determine the number of degrees of consanguinity (Cal. Prob. Code § 13), Section 308 does not refer to that statute but to the common law.  How many corporate lawyers can explain how to determine degrees of consanguinity under the common law?  Proof that a prospective provisional director is within the forbidden third degree of consanguinity would require an extraordinary genealogical knowledge, especially if a large number of judges must be considered.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...