Download - Lehman Brothers – Fall from grace
Tips For Officers And Directors In The Current
Economic CrisisJohn P. Brincko
Brincko Associates, Inc.530 Wilshire Blvd., Suite 201
Santa Monica, CA 90401(310) 553-4523
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Lehman Brothers – Fall from grace Lehman Brothers – Never reported a
loss as a publicly held company until June 08
Watershed Events – Substantive covenant default, failure to refinance existing debt or raising additional funds for a bridge loan
These watershed events usually are critical today and lead to the point of no return making bankruptcy inevitable and imminent
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Fiduciary Duties – Shifting Sands In A Distressed Economic Environment
Officers And Directors Must Understand Their Fiduciary Duties When Company Is Operating In A Distressed Mode
The Duty Of Care Requires That Management Exercise REASONABLE CARE In Overseeing The Activities Of The Company, Including Becoming Fully Informed Of All Material Information When Making Decisions
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The Duty Of Loyalty Requires Management To Act In The Best Interests Of Shareholders and CREDITORS In Distressed Situations
Business Judgment Rule – Officers and Directors Are Subject To It
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Zone Of Insolvency – Management Must Preserve The Value Of Company’s Assets For The Benefit Of Creditors
Zone Of Insolvency – Liabilities Greater Than Assets With Limited Prospects To Overcome In The Short Term; Inability To Cover Maturing Obligations As They Become Due In The Ordinary Course
Zone Of Insolvency Warning Signals – Company Experiencing Repeated Losses; Entire Business Sector Or Industry Experiencing A Downturn; Poor Cash Flow Attention; Trade Payable Extension; Aggressive Accounting Techniques
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Contingency Planning Vital “We Will Cross That Bridge When We
Get To It” Perspective Should Be Tossed Out The Window
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Examples Of Potential Breach Of Fiduciary Duties To Creditors:
Unviable Business Plan ApprovalRaising Additional Debt To Fund
Continuing Losses Or ExpansionLack Of Cost Reduction EffortsFailure To Consider Strategic Alternatives
QuicklyUntimely Purchase Of D&O InsuranceExcessive Compensation
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Recommendations:
Document Exercise Of Business Judgment
Management and Advisors AccountabilityBoard Actions Should Be DeliberativeHave Timely D&O CoverageHire Restructuring ProfessionalConsult With CreditorsAvoid Self Dealing