It's not easy leading a distressed company, much less a bankrupt one.
That's obvious, of course, but the point was hammered home by the
panelists, such as Harvey Miller of Weil,
Gotshal & Manges LLP (pictured.), and the moderator of an educational session at the Turnaround
Management Association annual convention in New Orleans on Wednesday.
Continue reading below
D.J.
"Jan" Baker of Skadden, Arps, Slate, Meagher & Flom LLP, a
participant in "Chaos in the boardroom: A day in the life of a director
in a distressed company," early on pointed out that as insolvency
approaches, the board's fiduciary duty expands from shareholders to all
stakeholders, including creditors. The problem is that different
creditors can want very different things, depending on their stakes in
the company. That dichotomy can lead to more meetings for board members
with the creditor constituencies -- and increased fees for attorneys,
restructuring advisers and others.
Miller noted that when directors work to maximize
value for stakeholders, it's usually secured creditors that benefit.
And in the process, the purpose of Chapter 11 as defined in the
Bankruptcy Act of 1978 -- namely to reorganize companies -- can be lost in
the shuffle.
The pendulum has swung from debtors' to creditors'
rights, the legendary attorney said. "Almost every Chapter 11 today is
a Section 363 sale," he noted, referring to the part of the Bankruptcy
Code that governs asset sales outside of a plan of reorganization.
And
with the rise of distressed investing, creditors may have short-term
interests, Miller said, rather than the long-term goals weighed by a
board.
As Baker summarized near the end: For conscientious board members, no good deed goes unpunished.
- David Elman
David Elman is the editor of The Deal's Bankruptcy Insider newsletter.
