Structuring Indemnification Escrows for Executive Protection
Structure executive indemnification escrows as bankruptcy-remote grantor trusts with non-discretionary five-day advancement mandates to insulate defense funds.
Solvency Opinion
Meaning
Financial analyses and formal letters issued by independent advisory firms assess whether a company will remain solvent after a major transaction, such as a leveraged buyout or dividend recapitalization. Obtaining a solvency opinion provides the board of directors with a professional evaluation of the transaction’s impact on the company’s financial health. This document helps demonstrate that the directors acted in good faith and with due care.
Valuation Test
The analysis applies three distinct financial tests to evaluate the post-transaction viability of the company. These tests within a solvency opinion examine the balance sheet, the adequacy of capital, and the company’s ability to pay its debts as they mature. This rigorous review provides a comprehensive picture of the firm’s financial stability.
Advisory Value
Boards use these reviews to protect themselves from future shareholder litigation or claims of fraudulent conveyance. When a solvency opinion is issued, it must be supported by detailed cash flow projections and market valuations of the company’s assets. This data ensures that the opinion is defensible if the company later faces financial distress.
Liability Relief
The letter does not guarantee that the company will not fail, but it does show that the board relied on expert advice. This reliance is a primary defense against allegations of breach of fiduciary duty during corporate restructurings.