CTP CTP Corporate Governance & Legal Compliance in Distress

Question 1

What happens to a board of directors' fiduciary duties when a company enters the 'zone of insolvency'?

Accepted Answer

Duties expand to include creditors as well as shareholders

Answer

Duties are eliminated entirely

Answer

Duties shift exclusively to shareholders only

Answer

Duties transfer to the court-appointed trustee

Question 2

A Chief Restructuring Officer (CRO) is typically appointed to:

Accepted Answer

Provide independent restructuring expertise and credibility with creditors

Answer

Permanently replace the CEO after restructuring

Answer

Represent creditor committee interests on the board

Answer

Manage day-to-day accounting and finance functions

Question 3

Under the Business Judgment Rule, directors are protected from personal liability when they:

Accepted Answer

Make informed, good-faith decisions in the company's best interest

Answer

Maximize shareholder value at all costs

Answer

Follow creditor instructions during insolvency proceedings

Answer

Defer all major decisions to outside legal counsel

Question 4

What is a 'special committee' of the board in a distressed restructuring or M&A context?

Accepted Answer

An independent group of directors formed to evaluate transactions with potential conflicts of interest

Answer

A committee that manages day-to-day operations during crisis

Answer

A creditors' committee appointed by the bankruptcy court

Answer

A committee that handles employee relations and retention plans

Question 5

The 'deepening insolvency' doctrine holds that:

Accepted Answer

Directors can be liable for prolonging a corporation's insolvent existence and increasing creditor losses

Answer

Deeper cost cuts lead to faster turnaround recovery

Answer

Secured creditors have deeper claims than unsecured creditors in liquidation

Answer

Deeper restructuring always creates more value than immediate liquidation

Question 6

Which U.S. government body oversees the appointment of trustees and examiners in bankruptcy cases?

Accepted Answer

The U.S. Trustee Program (Department of Justice)

Answer

The Securities and Exchange Commission (SEC)

Answer

The Federal Reserve Board

Answer

FINRA