When a business is facing economic uncertainties, the stress makes you think about your personal finances. While this concern exists among directors, another issue looms. Bankruptcy trustees and frustrated creditors may take this as a chance to sue individual directors personally.
Under Texas law, your standard protections can thin out. Plaintiffs often allege a breach of fiduciary duties, accusing you of mismanaging the remaining company funds as things went south.
Why filing for bankruptcy may trigger a trap
Unfortunately, when a business entity files for bankruptcy, the court freezes corporate assets. The court also treats the directors’ and officers’ policy as property of the estate, which can temporarily delay your access to its funds. This leaves you with zero access to company money, precisely when you need to retain personal defense lawyers against aggressive creditors.
What you can do to preserve your assets
Structuring your coverage correctly before a crisis hits can help keep your personal assets safe. You may implement independent Side-A Difference-in-Conditions (DIC) policies. As an executive, this can protect your personal assets when the company cannot or refuses to indemnify you. Even if the corporation completely collapses under pressure, this fund remains untouched, providing a dedicated war chest to pay for your legal defense.
Learning your options for shielding your personal funds
Texas common law expects corporate directors to act with the care that an ordinarily prudent person would use under similar circumstances, but the Business Judgment Rule generally covers you from personal liability for honest business decisions made in good faith.
Protecting your personal fund requires a proactive strategy that blocks your liability from the company’s fate. Because every corporate structure has unique vulnerabilities, seeking legal guidance from a corporate attorney is wise.