directors in the twilight zone
Download
Skip this Video
Download Presentation
Directors in the twilight zone

Loading in 2 Seconds...

play fullscreen
1 / 16

Directors in the twilight zone - PowerPoint PPT Presentation


  • 152 Views
  • Uploaded on

Directors in the twilight zone. Neil Cooper Partner, Kroll Corporate Advisory & Restructuring Past President, INSOL International. The “Twilight Zone”. The period when the future of the company is uncertain - Is it solvent or insolvent? Is it profitable or loss-making?

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Directors in the twilight zone' - paul2


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
directors in the twilight zone

Directors in the twilight zone

Neil Cooper

Partner, Kroll Corporate Advisory & Restructuring

Past President, INSOL International

the twilight zone
The “Twilight Zone”
  • The period when the future of the company is uncertain -
  • Is it solvent or insolvent?
  • Is it profitable or loss-making?
  • In essence,

will it survive or fail?

introduction
Introduction
  • considerable advances in corporate governance generally
  • insufficient consideration of liability in the twilight zone
  • two publications by INSOL International
  • In essence, it is the time when directors’ responsibilities change from protecting shareholders to protecting creditors
main issues
Main issues
  • On what does “twilight zone” depend
  • Actions giving rise to liability
  • Who may be liable
  • Orders available to the court
  • Impact on counterparties
  • Enforcement
  • Remedies
  • Duty to cooperate
on what does the twilight zone depend
On what does the “twilight zone” depend?
  • whether formal proceedings commenced
  • actual or assumed knowledge of insolvency
  • nature of transaction
  • whether other party connected or associated
  • any other factors?
actions giving rise to liability
Actions giving rise to liability
  • Breach of general & common law liabilities
  • Insolvency specific liabilities
actions giving rise to liability early stage
Actions giving rise to liability – early stage
  • falsification of company\'s books
  • transactions defrauding creditors
  • extortionate credit transactions
  • fraud in anticipation of winding-up
  • false representations to company\'s creditors – overtly or covertly
actions giving rise to liability later stage
Actions giving rise to liability -later stage
  • fraudulent (or dishonest) trading
  • wrongful (or negligent) trading
  • preferences
  • transactions at undervalue
  • incurring further credit during the twilight period
what defences are permitted
What defences are permitted?
  • lack of actual knowledge of insolvency
  • reasonable belief of solvency of companyafter transaction
  • benefit to company or group of related companies from transaction
  • Acting on professional advice
  • other (e.g. technical defence no intention to prefer)
who may be liable
Who may be liable?
  • Directors
  • Shadow directors
  • De facto directors
  • Former directors
  • Lenders/financiers
  • Third parties dealing with directors with or without knowledge of insolvency
orders available to the court
Orders available to the court
  • pay compensation to company
  • liability to creditors
  • disqualified from acting as director
  • imprisonment or fine
  • setting aside "tainted" transaction
  • postponing any debt owed by company to director
duty to co operate
Duty to co-operate
  • who has duty to co-operate with the office holder?
  • defence of privilege against self-incrimination?
  • court sanction to enforce duty by fine and/or imprisonment
  • statutory presumptions reversing burden of proof where connected parties concerned
sundry issues
Sundry issues
  • Time limits for actions
  • Appeal periods
  • Foreign application as well as domestic?
  • D & O insurance
  • Ability to incur further credit in twilight period as part of reorganisation
pros and cons
Pros and cons

Pros

  • Stop recklessness before too late
  • Encourages responsible management
  • Incentive to hire professionals

Cons

  • Accelerates collapse
  • Inhibits workouts
  • Weakens enterprise initiative
  • Increases risk to lenders & introduces uncertainty
in practice
In practice
  • Most directors start out honest
  • Poor results encourage little lies
  • which leads to bigger deception
  • and need to falsify
  • coupled with self-justification
  • and eventually little left to lose
  • And they can’t work out how it ended that way
international best practice
International best practice
  • Need for positive encouragement for improved corporate governance
  • Financing consequences
  • Increased penalties for abuse
  • Wrongful trading test is most workable – the stick
  • Improved rescue laws provide viable alternatives to directors – the carrot
ad