Description: Company in Distress? : Directors Needn't Be--Mitigating Risks at the Board

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Company in Distress? : Directors Needn't Be--Mitigating Risks at the Board

Investors see value in nominating members to the boards of companies they have invested in. Through board members, they can help improve the company's operations, define corporate strategy, adjust inefficiencies, improve governance, and ultima...

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Bibliographic Details
Main Authors:	Rechden, Claudio N., Miller, Kalina B.
Language:	English en_US
Published:	International Finance Corporation, Washington, DC 2015
Subjects:	ACCURATE INFORMATION BANKRUPTCY BANKRUPTCY PROCEEDINGS BOARD MEETING BOARD MEMBER BOARD MEMBERS BUSINESS JUDGMENT RULE CASH FLOW CHARTER COMPANY COMPANY IN BANKRUPTCY COMPANY'S CREDITORS CONFLICT OF INTEREST CONFLICTS OF INTEREST CONTROLLING SHAREHOLDERS CORPORATE ASSETS CORPORATE BODY CORPORATE CONSTITUENCIES CORPORATE ENTERPRISE CORPORATE GOVERNANCE CORPORATE STRATEGY CORPORATION CORRUPTION COUNSEL CREDITOR CREDITOR BODY CREDITOR CLAIMS CREDITOR INTERESTS CREDITORS CRIMINAL LIABILITY DEBT DERIVATIVE DEVELOPING COUNTRIES DIRECTOR LIABILITY DISTRESSED COMPANIES DISTRESSED COMPANY DIVIDENDS DUTY OF CARE DUTY OF CONFIDENTIALITY DUTY OF LOYALTY EMERGING MARKETS ENFORCEABILITY EQUITY VALUE FAMILY BUSINESSES FIDUCIARY DUTIES FINANCE CORPORATION FINANCIAL ADVISORS FINANCIAL DIFFICULTIES FINANCIAL DISTRESS FINANCIAL HEALTH FINANCIAL INFORMATION FINANCIAL REPORTING FINANCIAL SITUATION FINANCIAL STATEMENT FLOW OF INFORMATION FRAUD FRAUDULENT CONVEYANCES GOING CONCERN GOOD CORPORATE GOVERNANCE GOOD FAITH GOVERNANCE ISSUES INDEPENDENT DIRECTORS INFORMATION SYSTEMS INSOLVENCY INSOLVENT INSURANCE INTERNATIONAL FINANCE INVESTIGATION JUDGMENT JURISDICTION JURISDICTIONS LEGAL COUNSEL LEGAL FRAMEWORK LEGAL REQUIREMENTS LEGAL RIGHTS LEGAL RIGHTS OF CREDITORS LIABILITY EXPOSURE MAJOR CREDITORS MAJOR SHAREHOLDERS MINORITY SHAREHOLDERS MISMANAGEMENT NEGLIGENT CONDUCT OPERATION OF LAW PAYMENT OF DIVIDENDS PERSONAL LIABILITY POTENTIAL LIABILITY PREFERENTIAL PAYMENTS PREMIUM PAYMENTS PROPRIETARY PUBLIC COMPANIES REGULATORY OBLIGATIONS RETURN SECURITIES SHAREHOLDER SHAREHOLDERS SOLVENCY SPINOFF STAKEHOLDER STAKEHOLDERS STOCK PURCHASES STOCKHOLDERS SUBMISSION OF CLAIMS SUBSIDIARY SUPPLIER TRANSACTION TRANSPARENCY TURNOVER VALUATIONS WAGES WILLFUL FAILURE WITHDRAWAL
Online Access:	http://documents.worldbank.org/curated/en/2015/01/24225187/company-distress-directors-neednt-mitigating-risks-board http://hdl.handle.net/10986/21701

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Summary:	Investors see value in nominating members to the boards of companies they have invested in. Through board members, they can help improve the company's operations, define corporate strategy, adjust inefficiencies, improve governance, and ultimately increase the expected return on their investment. The authors examine the shift in the relative position of stakeholders when a company enters the penumbra of insolvency. In good times, directors rightly think of the shareholders as the parties to whom their duties to the company (and legal responsibilities) most directly extend. But once the enterprise s very survival as a going concern comes into question, the profile and legal rights of creditors and other stakeholders take on greater importance. The board must be able to demonstrate that it is doing everything it can to maximize the enterprise value of the company, and hence the likelihood that the company will meet its obligations to parties with claims (on the cash flow and assets of the company) that come before the residual interest of shareholders. This paper lists other actions (including, importantly, documentation of all material decisions) that each director should take to reduce the chances and consequences of subsequent litigation. The authors rightly emphasize the importance of securing reliable information and good-quality outside advice. For the board of a company in distress to be effective and to demonstrate that it has satisfied the duty of care, it is necessary to review the existing flow of information between management and the board and to make any changes needed to ensure that people and processes are in place for the board to receive timely and accurate information.