Decisions made by directors who devote sufficient time to making fully informed decisions (including with the benefit of advice from appropriate legal and financial advisers), on a reasonable basis and without conflict, should continue to receive deference under the business judgment rule.
6 Familiarize yourself with the financials. Directors should monitor the issuer’s liquidity position, capital resources, financial stability and compliance with financial covenants. They should also understand the trade-off between short-term liquidity and organizational longevity. 7 Approve where appropriate. Directors should approve dividends, share redemptions, and the like only after a comprehensive review of the issuer’s key financials. Payments may need to be stopped or reduced where appropriate. 8 Protect yourself. Directors should ensure that they have entered into appropriate indemnification agreements with the issuer. Also critical is having in place adequate D&O insurance coverage and understanding what that coverage entails, while appreciating that protections offered in normal circumstances may not be available or may change in the event of insolvency. 9 Understand when to consider insolvency options. Directors should ensure that the issuer carries on operations only if it can meet its existing obligations or the directors reasonably expect that any new obligations will be satisfied. If not, protocols should be put in place to manage these obligations. Insolvency advice should be obtained, and an insolvency plan developed. 10 Identify conflicts of interest. Directors should remain attuned to actual, potential or perceived conflicts of interest and retain independent counsel where appropriate.
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Governance Insights 2020
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