When private equity investors, hedge funds, distressed asset funds, major shareholders or founders step up and take board positions to help guide or turnaround a troubled company, they often do so for all the right reasons. But after the company fails, the realization that they have 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. While former directors may feel protected by a directors and officers liability insurance (D&O) 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 why it is important to evaluate one's D&O insurance coverage and why counsel should seek to move the litigation out of bankruptcy court.
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