Restructure This! Episode 11: Litigation Risks to Private Equity Sponsors in Chapter 11
Sheppard Mullin’s Restructure THIS! podcast explores the latest trends and controversies in Chapter 11 bankruptcy, commercial insolvency, and distressed investing. For this episode, Ben Finestone of Quinn Emanuel, David Dunn from Province, and Cesar Bello of Corbin Capital join us to discuss the litigation risks to private equity sponsors in Chapter 11 bankruptcy, including potential fraudulent transfer and breach of fiduciary duty claims, what triggers prepetition investigation into a sponsor’s conduct, and the role that litigation finance can play in reaching a fair settlement.
Ben Finestone is a Partner with Quinn Emanual, a litigation firm with offices in 11 different countries on four continents. As a Partner in the firm’s New York City Office, his areas of practice include Bankruptcy & Restructuring and Lender Liability & Other Banking Financial Institution Litigation.
David Dunn is a Principle at Province, a nationally-recognized financial advisory firm focusing on growth opportunities, restructurings, and fiduciary-related services. As a Principle, he serves in executive officer roles, as advisor to or member of boards of directors, in ad hoc and official creditors’ committees, and as a Litigation/Liquidating Trustee, Plan Administrator, or Examiner.
Cesar is a Partner for Research and Portfolio Management with Corbin Capital Partners, an independent alternative asset management firm offering multi-strategy hedge fund and opportunistic credit investing to clients throughout the United States. He works mainly on the firm’s private investment program, leading the litigation finance effort, while also focusing on private credit secondaries, structured credit transactions, manager seeding, and workouts.
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What We Discussed in This Episode:
- What are the litigation risks when a restructuring situation involves the distressed portfolio company of a private equity sponsor?
- Why has there been such a focus on the pre-petition conduct of sponsors?
- Does a pre-petition investigation into a sponsor's conduct always make sense?
- How do various causes of action, such as fraudulent transfer and fiduciary duty claims, typically play out after a Chapter 11 filing?
- Given the difficulty of proving fraudulent transfer claims, why do they remain significant targets for firms that provide litigation finance?
- Are breaches of fiduciary duties that give rise to liability fairly prevalent? Or are these claims more often a scare tactic employed by creditors' committees?
- In light of the potential for breaches of fiduciary duty claims, should an individual board member of a distressed entity consider retaining separate counsel?
- How should a lawyer prepare a director or officer who will potentially testify in bankruptcy court?
- Are there specific ethical issues from the perspective of litigation finance?
- Could litigation finance be leveraged for debtor-in-possession financing?
This podcast is for informational and educational purposes only. It is not to be construed as legal advice specific to your circumstances. If you need help with any legal matter, be sure to consult with an attorney regarding your specific needs.