By Sarah E. Tune and Mohsen Manesh
When a company begins experiencing financial distress that threatens its continued existence, its directors and officers must be vigilant about exercising their fiduciary duties. The company’s equity holders as well as outsiders will view decisions made during this time with particular scrutiny. Additionally, there are areas of law that attach personal liability to directors and officers; and, while risk of personal liability always exists, even in healthy firms, the potential for liability is heightened when a company is in financial distress.
Compounding the risks of personal liability, a financially distressed company may lack the resources necessary to indemnify its directors and officers, notwithstanding the indemnification agreements it may have with such individuals, and may even allow its director and officer insurance policies to lapse, because it is simply unable to pay the premiums. Continue reading…
