About Services Case Studies Insights News Resources My Board is Ultra-Nervous About Getting Sued And all of us are getting different advice from different people. March 5, 2020/Henry Owsley, Gordian Group Co-Founder and CEO more In this CFO series post we emphasize the importance of board members getting “unconflicted” advice on managing a distressed situation. Does the Board need to pursue peace with creditors in order to get releases? Every situation is different and needs its own legal scrutiny. And we are not attorneys. But many corporate directors, particularly those who have never been through the distressed experience, will be rightly concerned. Board members will be inundated with many lawyers and well-wishers telling them that they need to pursue peace with the creditors in order to get releases. In some instances, we have even seen attorneys largely usurp the Board’s role under the guise of protecting the Directors from litigation. Meanwhile, the lawyers give away the values to creditors, many of which could be such attorneys’ clients in other matters. The Optimum Way to Deal With Creditors We disagree with the appeasers of this world who believe that capitulation to creditors is necessary to get releases or that capitulation always produces the anticipated benefits of releases. Further, we do not believe that sacrificing the recovery of a junior constituency (think Old Equity) is necessarily the right way to achieve the desired legal protection. Voracious creditor groups may simply expect to eviscerate Old Equity, and then seek to have the Board (and the D&O carrier) pony up additional consideration. Tough negotiations with creditors and others may be a more fruitful path for management and Old Equity. RELATED: The Distressed Company and the Corporate Officer These Are the Board’s Top Priorities and Considerations We wholeheartedly agree with the premise that one of a Board’s top priorities is to obtain releases for itself and the management team. But there may be other objectives that a Board needs to consider, particularly in a situation where there is concentration of equity holdings. In our view, the Board should establish a list of priorities, and then develop a coherent strategy in which it can achieve some or all of these objectives through skillful implementation of an insolvency strategy. We think it boils down to common sense. Is a Board better off taking a firm position on a number of fronts in order to achieve success at least on the ones it deems more important? Or is it better off immediately asking for releases in exchange for giving the creditors everything else they want? Given that the first alternative deals from a position of strength (and the latter from weakness), we are staunch advocates of Door Number 1. RELATED: Key Questions Officers and Board Members Need to Ask A Lesson Learned is a Lesson Earned There is a lesson here in our book. When a group of professionals tells the Board that the key to getting releases is to follow the professionals’ advice and let them handle things – watch out. The Board should never cede control to its professionals, even its attorneys. The Board’s agenda is likely to be different from its professionals’, some of whom may be conflicted due to relationships with adversaries in the restructuring. RELATED: Keys to Picking the Right Advisory Team | Relevant Case Studies more See more in our series of Questions That Keep CFOs Up at Night At Gordian Group, we are delighted to field these kinds of confidential inquiries. To set up a call, please contact Leslie Glassman. Don't Miss Out. Subscribe! We have established this blog as a platform for insights, ideas and answers related to investment banking. It's ideal for company directors and officers, private equity and legal professionals. Subscribe for Gordian updates and our monthly newsletter. About the CFO Series Dealing with the prospect of financial distress is obviously unsettling. People can potentially lose everything they have worked for their entire lives. Risks abound, with cash crises, creditor pressures, employee defections, and so forth. In addition, professionals and others have their hands out for fees (going broke ain’t cheap) and companies should be rightly concerned about “agendas” that may differ dramatically from those of the company, its owners and its management. See the entire series here. Please subscribe above to receive an alert when we publish new posts. If you have a question that we haven’t addressed, please contact Leslie Glassman. Gordian Group, LLC 950 Third Avenue, 17th floor New York NY 10022 212.486.3600 212.486.3616 info@gordiangroup.com careers@gordiangroup.com We Wrote the Books When boards and equity owners need specialized help...Gordian Group wrote the definitive books in our field: Equity Holders Under Siege: Strategies and Tactics for Distressed Businesses and Distressed Investment Banking: To the Abyss and Back. See our Publications page for details. © Gordian Group, LLC, LLC–GORDIANSM and GORDIAN GROUPSM are service marks of GORDIAN GROUP, LLC. · Privacy · Legal · Member SIPC and FINRA · BrokerCheck Icons used on this site are made by Freepik, monkik, prettycons, and dDara from flaticon.com and are licensed by CC 3.0 BY. · Photos Copyright © Alexa Van de Walle · Site by Transmit Studio We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it.OkPrivacy policy