Because board members have a financial duty to their shareholders, the time may come when an insolvent organization must consider the option of bankruptcy in order to protect those investors’ interests. In many states, creditors are also designated as stakeholders and must be considered, too. Depending on the type of bankruptcy that is filed, board members may continue to operate in their directorial positions.
As an organization approaches the position of insolvency, board members must consider the options in front of them. According to the Houston Chronicle, “Conducting a thorough financial review and seeking professional help are now the primary concerns. Directors should avoid resigning because those who quit rather than engage themselves in the bankruptcy proceedings are generally viewed as being in derogation of duty.” In other words, board members shouldn’t jump ship during the company’s moment of greatest need.