Claims that follow the people who ran the company
Corporate bankruptcy litigation frequently targets directors and officers. A trustee, a litigation trust, or a creditors' committee with court permission may bring claims for breach of fiduciary duty, for approving transfers to insiders, or for continuing to operate in ways that deepened losses, though whether that last theory is recognized depends on the state. These duties are generally governed by the law of the state where the company was formed, and exculpation clauses in the charter can often limit claims based on the duty of care but generally not those based on disloyalty or bad faith. Claims against insiders are often paired with fraudulent transfer and preference claims seeking the return of payments.
Insurance, records, and privilege
Directors and officers insurance often becomes the main source of both recovery and defense funding, and the bankruptcy case can affect who gets access to it. Policy terms such as the insured-versus-insured exclusion and priority-of-payments clauses matter, and the bankruptcy court may need to approve payment of defense costs from the policy. Board minutes, materials reviewed before key votes, advice received from lawyers and financial advisers, and emails from the period form the core of any defense. Former directors may no longer have access to company systems, so requesting preservation early is important. Because the company's privilege usually passes to the trustee, communications you assumed were confidential may end up with the other side.
Early steps for individuals
Directors and officers usually need counsel separate from the company once their interests diverge. Early steps include placing insurers on notice, assessing indemnification rights, and responding to requests for interviews or documents from the committee or an examiner. Some claims are resolved through insurance-funded settlements as part of a Chapter 11 plan, while others proceed as adversary proceedings or in other courts. In a first meeting we review your role, the decisions likely to be examined, and the coverage available, and we decide how to engage with the investigation.
