We have previously discussed the standard for the appointment of a custodian to a deadlocked corporation under Section 226 of the Delaware General Corporation Law (“DGCL”).  What standard is applied by the Court to consider whether to appoint a custodian on an interim basis to a corporation before a trial on the merits?

The recent case of In re TransPerfect Global, Inc., C.A.No. 9700-CB (Del.Ch. Dec. 3, 2014) addresses this question.  In TransPerfect, the Court of Chancery denied a request for the interim appointment of a custodian under Section 226 of the DGCL.  The decision was granted despite the fact that the corporation was deadlocked as a result of dissension among a board consisting of two directors.

In the opinion, the Court found that the moving party must demonstrate that the “appointment [of an interim custodian] is urgently needed for the immediate protection of the company.”  Slip op. at 2 (citing Moore v. C.H.M. Enters., Inc., 1983 WL 102620, at *2 (Del. Ch. Nov. 9, 1983)).  Absent such a showing, the Court will be disinclined to appoint an interim custodian prior to a trial on the merits, even in the face of corporate deadlock.

Carl D. Neff is a lawyer with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.