Thank you to Dechert for hosting and sponsoring our April event on the Role of the Independent Director in a restructuring

We have received fantastic feedback from the participants who have enjoined listening to the panellists - Richard Heis - Interpath, Andrew Amos - First Value Partners, Kay Morley - Dechert LLP and Marykay Fuller - Slate Hill Advisors.

The panel of experts discussed the strategic benefits for key stakeholders in appointing an independent director and the key role they can play in assisting distressed companies in achieving a successful restructuring. The panel has considered the attributes of a successful independent director and risks for directors in taking an appointment in the context of a contested restructuring.

Private equity funds or other shareholders who acquire equity in a company sometimes request that they should have the right to appoint an independent director to the Board. Independent directors owe fiduciary duties to the company and such duties are the same as fiduciary duties and other statutory duties owed by any other directors to the same company. It was noted that the sponsors sometimes prefer to appoint their own investor directors in addition or instead of an independent director.

The role of an independent director is not to replace the current directors but to drive the restructuring process, preserve value and assist the other directors in understanding a restructuring process and as part of the Board’s decision-making processes. In a situation where there are allegations of fraud adding an independent director to the Board would increase credibility of such Board. Another important point is that Board members often don’t have any relevant experience of restructuring situations so an independent director/CRO would have the opportunity to educate the rest of the Board.

It was noted that an independent director would be well placed to handle requests from various shareholders and other interested parties for information and updates on the financial position of the company. An independent director will also know how to report to stakeholders without creating panic, overpromising and will be skilled at getting people on side and building consensus.

The discussion moved to the D&O policy and indemnities. It was noted that before taking on a new appointment, an independent director should assess any risks associated with it. Independent directors should understand if they will be covered by the D&O insurance and what the terms are of such insurance (e.g. whether the insurance cover is sufficient or if it terminates on insolvency of the company). In the absence of the D&O policy, there could be an indemnity provided to the independent director, for example (very reluctantly) by the investment fund who appointed such a director. It is important to monitor and measure any risks associated with the appointment and also understand if the appointment is to one or more entities in the group and which jurisdictions would be involved. The independent director would owe duties to each company to which they have been appointed so it is essential to determine if there are any conflicts between the group entities and if multiple appointments within the same group would be appropriate. Examples of conflicts included a decision if dividend should be distributed or blocked.

The panel made it clear that the role of an independent director depends on the type of the company to which they have been appointed. For example, any information shared with stakeholders of a company with listed debt might need a public/private information barrier and appropriate cleansing arrangements.

The panel discussion was followed by questions from the audience. There was interesting discussion around an independent director being the spy in the camp and potentially reporting back to the person who has appointed him/her. The panel discussed the duties of independent directors in the context of information sharing with shareholders and other stakeholders and concluded that there was no need for an independent director to sign an NDA with the company given the existing rules and duties all directors including an independent director were subject to.

The role of a non-executive director, which is evolving, was also discussed with the audience. Non-executive directors traditionally sit on the sidelines and act in their advisory capacity. A NED with restructuring experience can help the Board to understand the context in which they are operating which is not business as usual and bring a broader perspective and experience to the Board deliberations and decisions.

Thank you to our TMA members for participating in such an interesting discussion and looking forward to the next one!

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