All entrepreneurs and early-stage investors understand that a new venture is a calculated risk – you plan for growth but you also manage the downside risks. Too often, though, business teams don’t plan ahead for the possibility that a business must be shut down until the reality is unavoidable. Decisions must be made quickly, and the board and officers are faced with numerous questions, from fiduciary duties owed to shareholders and creditors to personal liability for decisions made when the distressed company is insolvent. While protection under the U.S. Bankruptcy Code is certainly one option, for emerging companies it may not be the best one.
Our panelists discussed what executives should know when their company is on the brink of insolvency and discuss options for insolvent companies outside of bankruptcy that minimize board risk and maximize assets for creditors, including using statutes permitting assignments for the benefit of creditors (ABCs).