The Examiners: Philip C. Dublin on the Rural/Metro Ruling

What does the Delaware Chancery Court’s Rural/Metro ruling mean for advisers to distressed companies? Did the court reach the right conclusion?

The Rural/Metro ruling should not materially impact advisers to distressed companies. The reason is simple. Professionals are already obligated to perform their duties (and treat their clients) with candor, loyalty and professionalism. Rural/Metro simply reaffirmed these commitments.

To adhere to these commitments, it is incumbent on every professional to have protocols in place to ensure that when engagements are undertaken, a proper conflict check is performed, the client is informed of any potential conflicts that may exist and, to the extent necessary, knowing and permitted waivers are obtained or the engagement is declined. Indeed, for professional conflict issues, it is all about disclosure, disclosure, disclosure. Proper disclosure of potential conflicts is necessary to protect not just the professional but also the new client and pre-existing clients.

While protocols may differ from firm to firm, appropriate conflict procedures are obligatory. Our firm, for example, has a number of safeguards in place to ensure that potential conflicts are appropriately checked and cleared. All professionals at our firm, before accepting the representation of a new client or the representation of an existing client in a new matter, must perform a conflicts check through an electronic conflicts database. If a potential business conflict arises, the firm has a special conflicts committee that evaluates the propriety of accepting the new client or matter and ensures that the potential conflict is disclosed fully to the applicable client and, if appropriate, waivers obtained or the matter declined. Similar procedures exist for potential ethical conflicts that are evaluated by the firm’s general counsel and ethics counsel. All new business must likewise be approved by a business acceptance committee.

Of course, restructuring professionals have added protections for in-court engagements where their retention is court-approved, but that approval is likewise grounded on adequate disclosure, the absence of which, as per Rural/Metro, may have material negative consequences for a professional.

Philip C. Dublin is a partner at Akin Gump Strauss Hauer & Feld LLP in New York, where he concentrates on creditors’ rights, corporate restructurings and bankruptcy law.

Bankruptcy Beat readers, what are some key components of your firms’ conflicts checks?