Ending the inevitable battle over whether the estate should assert claims: The case for independent fiduciary investigations
The COVID-19 pandemic, mandatory closure of non-essential businesses, and stay-at-home orders are having a devastating impact on the economy and businesses across virtually all industries. We already are seeing the beginnings of what most experts anticipate will be an unprecedented wave of business bankruptcy filings over the next 18 months. These cases will likely involve the assertion of claims by creditors of insider wrongdoing of various sorts, including claims for breach of fiduciary duty, breach of contract, fraudulent transfers, and preference actions. As the creditors seek bankruptcy court authority to pursue these claims against insiders, the debtor’s attempt to reorganize, most likely involving these same targets, could be derailed or at the very least delayed.
This alert is the first in our two-part series examining strategies for allowing the investigation of these potential claims and defenses of the board of directors’ decision on whether or not to pursue the claims while minimizing impact on the restructuring process. Oftentimes, a debtor’s creditors will seek to stand in the shoes of the debtor and pursue these claims, arguing that the debtor’s board is so hopelessly conflicted that it cannot reasonably assess the viability of the claims in question. The creditors’ committee also has its own disabilities in making an independent decision on the merits of pursuing a claim. The debtor still has a duty as an estate fiduciary to assess the claims, but the appearance of conflicts may discredit any board decision.
Read the full article
DLA Piper by Tom Califano. Published May 6, 2020.