As a company heads down the restructuring path, its directors’ and officers’ fiduciary duties shift from the company’s shareholders to both its shareholders and creditors. When exactly this shift occurs is the tricky part, creating liability minefields the directors and officers must try to avoid. Making matters worse, as a company’s financial situation deteriorates, the personal asset risk of the directors and officers increases at the exact same time that the company can no longer indemnify them.
Certainly, there are processes the directors and officers can follow to mitigate the risk of being second-guessed, but the risk of being sued can never be eliminated. Enter Directors’ & Officers’ Liability (“D&O”) insurance. While D&O insurance is designed to protect both the individuals’ personal assets and the company’s balance sheet, during a restructuring, the personal asset protection becomes the primary focus. The question is: how does a company put its D&O policy in the best position to protect its directors and officers during a restructuring?
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