How to Defend Officers and Directors in a Management-Hostile Environment

In light of the current atmosphere, it is understandable that any such payment would be subjected to serious scrutiny. However, it is the same hostile atmosphere that threatens D&Os which explains why companies find it necessary to make such payments itself in order maintain necessary, competent management. In fact, one would be naive to believe that as part of pre-bankruptcy preparation, companies never discuss whether prior to the bankruptcy filing, they should tender a retainer to independent counsel who will independently represent the D&Os during the pendency of that company's bankruptcy case. The need to have this discussion pre-petition is that because a company's bankruptcy petition is filed, creditor scrutiny is magnified, and creditors, as well the bankruptcy court and the United States' Trustee may raise questions about the proposed transfer and/or oppose it.

Moreover, while such a payment is generally approved by corporate by-laws and charters and state law (ignoring, for the moment when D&Os authorize such payment in anticipation for the inevitable lawsuits that will arise as a result of their willful wrongdoing, there may be a self dealing question), most bankruptcy practitioners will advise their clients to seek court approval of any payment proposed to be made post-petition.