Effectively Defending Adversarial Actions Brought Against Former Directors and Officers in Bankruptcy Court

When private equity investors, hedge funds, distressed asset funds, major shareholders or founders step up and take board positions to help guide or turn around a troubled company, they often do so for the right reasons. But, after the company fails, the realization that they opened themselves up to accusations of breaches of fiduciary duties by a bankruptcy trustee and future litigation in a bankruptcy court often only occurs months or years later. And, while former directors may feel protected by a directors and officers (D&O) liability policy held by the failed company, the potential for inadequate D&O insurance coverage combined with the often highly unfavorable venue of bankruptcy court may result in that feeling of protection being fleeting at best or completely misplaced at worst.

This article explores the reasons to evaluate early the D&O insurance coverage in this special context, and to engage strong civil and securities litigation counsel to work to move the litigation out of bankruptcy court.

Katten Muchin Rosenman LLP is a Marsh Securities Panel Counsel and Asset Management Panel Counsel firm.