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Beyond Chapter 11: Entity Coverage for Directors and Officers
More than 90% of public companies purchase “entity coverage” as part of their directors' and officers' (D&O) insurance policies. Entity coverage protects the company itself ' as opposed to its directors and officers ' against securities claims. During the last 2 years, however, it would have been difficult for the director of any public company to avoid hearing that entity coverage creates an undue risk of depriving the director of D&O coverage if the company for which he or she serves files for bankruptcy. One major D&O insurer distributed a paper containing this gratuitous advice to the directors of every public company in the country. Many legal seminars and D&O coverage proposals prepared by brokers also warn of this danger. Not surprisingly, CEOs and general counsel often are questioned by their boards about D&O coverage in the event of bankruptcy.
The dire warnings find little support in bankruptcy case law. In a number of recent major bankruptcies, including Enron, courts have allowed directors and officers access to the proceeds of their D&O policies despite the presence of entity coverage. The Southern District of New York's decision in In re Adelphia Communications Corp., 298 B.R. 49 (S.D.N.Y. 2003), follows this trend. Adelphia's directors and officers were charged with fraud in numerous civil and criminal proceedings. The directors and officers sought relief from the automatic stay to access the proceeds of their D&O policies to pay for their defense of these fraud cases. Although Adelphia's D&O policies contained entity coverage for Adelphia itself, the securities actions had been stayed as to Adelphia, and thus Adelphia had not sought reimbursement of any defense costs relating to those actions.
Bankruptcy Sales: Finding a Diamond In the Rough
There is no efficient market for the sale of bankruptcy assets. Inefficient markets yield a transactional drag, potentially dampening the ability of debtors and trustees to maximize value for creditors. This article identifies ways in which investors may more easily discover bankruptcy asset sales.
Judge Rules Shaquille O'Neal Will Face Securities Lawsuit for Promotion, Sale of NFTs
A federal district court in Miami, FL, has ruled that former National Basketball Association star Shaquille O'Neal will have to face a lawsuit over his promotion of unregistered securities in the form of cryptocurrency tokens and that he was a "seller" of these unregistered securities.
Why So Many Great Lawyers Stink at Business Development and What Law Firms Are Doing About It
Why is it that those who are best skilled at advocating for others are ill-equipped at advocating for their own skills and what to do about it?
Blockchain Domains: New Developments for Brand Owners
Blockchain domain names offer decentralized alternatives to traditional DNS-based domain names, promising enhanced security, privacy and censorship resistance. However, these benefits come with significant challenges, particularly for brand owners seeking to protect their trademarks in these new digital spaces.
Coverage Issues Stemming from Dry Cleaner Contamination Suits
In recent years, there has been a growing number of dry cleaners claiming to be "organic," "green," or "eco-friendly." While that may be true with respect to some, many dry cleaners continue to use a cleaning method involving the use of a solvent called perchloroethylene, commonly known as perc. And, there seems to be an increasing number of lawsuits stemming from environmental problems associated with historic dry cleaning operations utilizing this chemical.