Almost all large (and many small) companies in today’s economy use derivatives in one way or another to hedge against future risk.

In the recent heyday of real estate and structured finance, the use of “bankruptcy–remote” special purpose entities (SPEs) as borrowers was a fundamental underwriting requirement by lenders in many loans, and a critical factor considered by ratings agencies, to shield lenders and their collateral from the potentially adverse impact of bankruptcy filings by their borrowers’ parents and siblings.

The recent economic tumult brings to the forefront the issue of fiduciary duties in the context of insolvency – an unfortunate circumstance faced by an increasing number of boards of directors and shareholders in these troubled times.

Directors and officers managing corporations, especially when the corporation is insolvent or operating in insolvency situations, need to be cognizant of their fiduciary duties. This alert provides a brief overview of these fiduciary duties, including practical considerations in the exercise of these duties.

Fiduciary Duties When a Corporation is Solvent

With the economic crisis leading to the failure of many businesses, bankruptcy cases are on the rise. In many of the cases grabbing headlines, such as Lehman Brothers, Nellson Nutraceutical, New Century and SemCrude, courts have shown a willingness to appoint examiners to investigate, report on and make recommendations regarding possible issues of mismanagement, fraud or other improprieties relating to the affairs of the debtor or its former or current management.

Belgium has modified its law on business reorganizations that involve distressed companies. The new law of January 31, 2009, on the continuity of companies came into force on April 1, 2009, replacing an unpopular and rigid law on judicial composition proceedings that dated to 1997.

This new law simplifies the rules and procedures for reorganizing distressed companies by providing a variety of new flexible out-of-court and in-court options designed to facilitate business recovery.

A pre-packaged business sale (or “pre-pack”) is an arrangement under which the sale of a company’s business or assets is agreed in principle with a buyer prior to the appointment of an insolvency practitioner (most commonly an administrator), who then executes the sale shortly after his or her appointment.

Bankruptcy is a highly specialized legal practice area that can be difficult for the non-lawyer to navigate. Bankruptcy can also present many traps for the unwary. A bankruptcy or distressed financial situation will in most cases materially affect a company’s key relationships, customers, suppliers and business partners. All company decision makers need an understanding of how to react to protect their organization’s interests. Here are ten practical considerations to recognize in this distressed environment.

Italian Decree 134/2008, which suspended competition law for crisis buyouts, thereby allowing the merger of Alitalia and Air One, has been called into question following a claim of unconstitutionality brought by consumer association Federconsumatori, Italian airline Meridiana, its subsidiary Eurofly and the province of Milan. The question of whether the Decree potentially violates Article 3 on equal treatment and Article 41 on freedom of economic activity has now been referred to the Italian Constitutional Court.

In the matter of Bernard L Madoff Investment Securities LLC [2009] EWHC 442 (Ch), Mr Justice Lewison granted an application for the transfer of personal data in the possession of the joint provisional liquidators of a UK subsidiary to the trustee in bankruptcy of its parent company in the US, Bernard L Madoff Investment Securities LLC. The application was granted on the basis that it was necessary for reasons of substantial public interest.