Articles & Media

This article discusses the considerations that C-suite executives, including CEOs and CFOs, should keep in mind when deciding whether to file for Chapter 11 bankruptcy. The author, Kenneth A. Rosen, emphasizes the need for a thorough analysis of the true costs of bankruptcy before making such a decision. Rosen highlights that Chapter 11 can devalue a company, and the longer the reorganization process takes, the more value the company may lose. He suggests that executives should carefully weigh the direct and indirect costs of bankruptcy, including professional fees, increased borrowing costs, credit downgrades, erosion of customer trust, and strain on supplier relationships. The article also touches upon the concept of a "cram down" reorganization, where a court approves a bankruptcy reorganization without the approval of some creditors. However, Rosen cautions against relying solely on this strategy, emphasizing the importance of considering the best interests of creditors and ensuring that the secured creditor receives at least the value of their collateral. Ultimately, Rosen advises that settling with creditors outside bankruptcy may be a more attractive option if it enables a successful restructuring before reaching the point of no return. He suggests that the goal should be a settlement that allows for a quick emergence from financial distress and the restoration of the company's stability. In casual terms, it's like Rosen is saying, "Before jumping into Chapter 11, leaders should really think about the costs involved. It's not just about numbers; there are other factors like trust and relationships. Sometimes settling outside bankruptcy might be a smarter move for the long-term health of the company.

This article, written by Kenneth A. Rosen and Scott Cargill, discusses the challenges that corporate lawyers may face when balancing their duty to advocate for a client's goals with their ethical obligations to objectively assess established law. The authors use the Delaware Court of Chancery's decision in Bandera Master Fund LP v. Boardwalk Pipeline Partners, LP as a case study to highlight the dangers of losing objectivity and professionalism in the pursuit of a client's financial objectives. In the case, Loews Corporation sought an opinion of counsel allowing it to exercise a buyback option in a transaction involving Boardwalk Pipeline Partners. The court found that the legal opinion was "contrived" and delivered in "bad faith," as it relied on "counterfactual assumptions" to achieve a desired result, despite significant uncertainty in key facts. The court ruled against Loews, stating that its efforts constituted "willful misconduct," and awarded over $690 million in damages to shareholders. The key takeaways from the article emphasize that attorneys should not reach legal conclusions under undue client pressure, should not rely on untrue facts, and must perform adequate diligence. Additionally, when delivering a legal opinion, law firms can make good faith predictions about the future but should not assume future outcomes. The importance of balancing zealous advocacy with adherence to ethical rules, professionalism, and common sense is emphasized. What are your thoughts on the challenges faced by corporate lawyers in maintaining objectivity and professionalism while advocating for their clients' interests?