Litigating against Directors and Officers of Bankrupt Dot-Com Entities: a Potential Asset for the Debtor’s Estate
Dennis Klein and Mira Vayda Edelman
Creditors’ committees under Chapter 11 of the United States Bankruptcy Code have the statutory duty to perform essential functions to maximize recovery for the bankrupt estate. One potential supply of funds for the bankrupt estate consists of recovery from directors and officers whose breach of their fiduciary duties contributed to the company’s insolvency. Due to the many complexities and untraditional characteristics of dot-com entities, creditors typically experience difficulties in recovering losses if the dot-con entity becomes insolvent. Creditors’ committees, however, can often obtain funds for the bankrupt estate from personal assets of errant directors and officers of the insolvent dot-coin entity, or from director and officer (D&O) insurance policies.
The purpose of this article is to analyze the potential liability of the debtor’s directors and officers resulting from those directors’or officers’ mismanagement of the of the bankrupt dot-com company. Specifically, the multiple facets of the responsibilities of directors and creditors’ committee litigation will be addressed.