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Building the right D&O program to navigate financial distress

Building a strong D&O program is vital for private companies facing financial distress.

07/28/2025 · 7 minute read

Macroeconomic challenges, geopolitical tensions, regulatory changes, sector dynamics, and other factors are creating a difficult risk landscape for many private companies, potentially jeopardizing their financial stability. These mounting pressures may contribute to revenue losses, liquidity challenges, and financial hardships that could necessitate restructuring or even bankruptcy proceedings.

As companies confront financial difficulties, the risks to their directors and officers can intensify. During this time, senior leaders are often tasked with making critical decisions that can significantly impact the future of their organization; these choices are likely to come under increased scrutiny after the fact, with leaders becoming potential targets for litigation from shareholders, creditors, lenders, bondholders, and others.

Whether they are implicated in breaches of fiduciary duty, allegations of mismanagement, or claims of failing to act in the best interests of the company and its stakeholders , the personal assets of a private company’s leadership may be at risk without the right directors and officers liability (D&O) coverage.

Considering strategic options amid financial distress

When faced with challenging financial circumstances, senior leaders often explore options aimed at returning the company to profitability or restructuring operations. As they do so, senior leaders must consider the risks and implications of each strategic choice on both the organization and the directors and officers tasked with steering the company.

It is crucial to recognize that final decisions — as well as those perceived to have contributed to the company’s financial challenges — are often scrutinized extensively, increasing the risk of claims against both the organization and its leadership. The potential for personal liability is often a pressing concern for directors and officers, especially when the company may be unable to indemnify them due to insolvency. 

Moreover, companies undergoing turnaround or restructuring processes may face different plaintiffs than usual, such as creditors’ committees and other stakeholders that may have the ability to investigate and bring claims. This shift can lead to heightened scrutiny of board decisions, increasing the likelihood of allegations that directors and officers failed to act in the company’s best interests or that they should have implemented decisive measures sooner to preserve value.

Given these complexities, it is critical for leaders to take early action to secure the appropriate insurance coverage that provides sufficient protection to them and their colleagues.

Navigating the turnaround and restructuring process

As organizations plan for their future, they can expect to face numerous questions and challenges, particularly regarding their insurance programs. Because businesses in financial distress have unique needs, securing robust insurance coverage at competitive pricing and with appropriate limits and terms and conditions may be more challenging.

To protect both the organization and its senior leaders, it is prudent to conduct a thorough evaluation of the current situation and develop a path forward toward an effective D&O program. Involving the company’s management and external financial and legal advisors can help better inform the business’ needs.

Understanding the importance of a well-structured D&O program

A well-structured D&O insurance program is essential to safeguard the personal assets of directors and officers. Without adequate coverage, the financial repercussions of litigation can be devastating for senior leaders and can even lead to personal bankruptcy. 

It is especially important that the program is designed to provide protection in situations where the company lacks the resources to indemnify its directors and officers, often due to insolvency or lack of liquidity. In these situations, the type of D&O coverage purchased is instrumental in determining whether senior leaders are provided with the necessary protection. 

While a typical D&O policy is generally comprised of three insuring agreements — Side A, Side B, and Side C — only Side A applies solely to directors and officers, providing them with personal asset protection. Obtaining dedicated Side A limits — especially Side A “difference in conditions” (DIC) limits that offer broad coverage and few exclusions — can provide peace of mind.  

For instance, a company with a problematic debt situation may have a “major creditor exclusion” on their D&O policy; if this cannot be removed, Side A DIC limits can provide protection for directors and officers in the event of a claim from that creditor. Sufficient and dedicated Side A D&O limits are a critical tool for attracting and retaining senior leadership during challenging periods.

Timing and proactive measures key to mitigate risks

Financial distress rarely occurs overnight. Still, many organizations delay necessary action, sometimes until mere days before filing for bankruptcy. However, timing is of the essence when it comes to establishing a new or reviewing an existing D&O program to respond to evolving circumstances, and it is prudent for organizations to initiate this process even while they are still considering their strategic path.

Engaging with insurance advisors before the organization is on the brink of bankruptcy allows time to carry out a thorough review of coverage needs, identify coverage gaps, and secure the necessary protections before a financial crisis escalates. A skilled insurance advisor can also work with your internal and external legal advisors to understand the types of restructuring transactions being contemplated and whether a “run-off” or “tail” program may be needed in the event of a change in control under the policy’s terms.

Delaying this review can lead to a number of risks, such as the inability to secure adequate coverage, increased premiums, and restrictive terms and conditions due to the company’s deteriorating financial condition. Engaging a knowledgeable broker or insurance advisor early in the process can help organizations effectively present their case to insurers and navigate the complexities of the insurance market.

Focusing on value during times of distress

Financial difficulties can weigh heavily on private companies. Turning around or restructuring a company to weather financial distress can be challenging. 

Organizations undergoing this process should proactively address their insurance needs and secure appropriate coverage that will help protect their senior leaders during this challenging time. 

As their directors and officers face heightened risks during periods of turmoil, including to their personal assets, a robust insurance program allows leadership to focus on making the most effective decisions for their company.

Our people

Michael Gil

Michael Gil

Senior Vice President, FINPRO

Alan Kornberg

Alan Kornberg

Senior Advisor, Turnaround and Restructuring Group

  • United States

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