lehman brothers – fall from grace

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Tips For Officers And Directors In The Current Economic Crisis John P. Brincko Brincko Associates, Inc. 530 Wilshire Blvd., Suite 201 Santa Monica, CA 90401 (310) 553-4523 [email protected]

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Tips For Officers And Directors In The Current Economic Crisis John P. Brincko Brincko Associates, Inc. 530 Wilshire Blvd., Suite 201 Santa Monica, CA 90401 (310) 553-4523 [email protected]. Lehman Brothers – Fall from grace - PowerPoint PPT Presentation

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Page 1: 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

[email protected]

Page 2: Lehman Brothers – Fall from grace

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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

Page 4: Lehman Brothers – Fall from grace

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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

Page 8: Lehman Brothers – Fall from grace

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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