Bridgeport Holdings Inc. Liquidating Trust v. Boyer (In re Bridgeport Holdings, Inc.), 2008 WL 2235330 (Bankr. D. Del. May 30, 2008).
Summary: Liquidating trust brought adversary proceeding against Chapter 11 debtors’ former officers and directors and restructuring professional appointed to position of chief operating officer (COO), asserting claims for breach of fiduciary duty and lack of good faith and corporate waste. Defendants moved to dismiss.
Gibson, Dunn & Crutcher has summarized this case in a publication entitled Delaware Bankruptcy Court Expounds on Directors’ Duties in Financially Distressed Situations June 30, 2008. They conclude with the following advice for officers and directors:
To limit such claims, directors and officers of financially distressed companies should:
- assume all actions will be scrutinized and second guessed;
- avoid actions that could cause loss of protection of business judgment rule (e.g., conflicts of interest or conflicting loyalties; insider issues; preferential treatment of certain stakeholders, failing to keep informed);
- act with care after obtaining all necessary information (directors, members and managers can rely in good faith on reports prepared by officers or outside experts);
- obtain adequate professional and expert advice on a timely basis;
- in consultation with the company’s advisors, establish and follow a deliberate decision-making process;
- document the decision-making process;
- disclose all material facts;
- in connection with potential transactions, hire investment bankers, obtain fairness opinions and/or seek offers from potential purchasers;
- do not freeze up—no decision is a decision and will likely lead to an argument that duties were abdicated.