FICC Focus Katten’s Winters on Distressed Governance: State of Distressed Debt
May 11, 2024
Julia Winters, a Partner in Katten's commercial litigation practice, brings her expertise in complex bankruptcy matters to the discussion. She highlights the evolving 'consensus model' where independent directors collaborate with unsecured committees. Key topics include the critical role of examiners during financial turmoil, independence validation for directors, and the impact of recent court rulings on investigations. Winters also addresses the significance of strong indenture trustees for note holders and the rising importance of proactive measures in distressed situations.
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Why Boards Bring In Independent Directors
- Boards often appoint independent directors during restructuring to replace or augment governance quickly.
- These directors can have narrow mandates like investigations or broad oversight through board resolutions.
Define Scope And Budget For Investigations
- If independent directors will investigate transactions, explicitly grant them the right to hire their own legal and financial advisors.
- Define the investigation scope and budget in the board resolution to avoid later disputes.
Court Deference And When It Erodes
- Courts typically defer to a debtor's business judgment when appointing directors, especially with U.S. Trustee support.
- Strong opposition from the U.S. Trustee or creditors can trigger limits like spending caps or narrowed mandates.