When a company gets into difficulty, its board is rarely short of advice. It receives descriptions of the legal framework, recitals of its duties, and conclusions that end in "it depends". All of that may be accurate. None of it is decision-ready. What a board in distress needs is not an opinion on the law but a map of its options — and it should insist on getting one.
Why "it depends" is not a deliverable
A distressed board has to make choices under time pressure, with incomplete information, and with personal liability in the background. A memo that explains the duties under Art. 725 ff. CO but does not say what the board should actually consider doing has answered a question nobody asked.
The honest core of legal advice in a crisis is often "it depends on the facts" — and a good adviser will say so. But that sentence is the beginning of the work, not the end of it. The adviser's job is then to lay out the scenarios the facts allow, and what each one costs.
The scenarios a memo must map
Every distressed company is different, but the realistic paths usually come from a short list. A decision-ready memo names the ones that are actually open — and says explicitly which are closed and why. Typically the candidates are:
- Stabilise and refinance: fresh equity or new money from existing stakeholders, combined with operational measures.
- An out-of-court agreement with key creditors: waivers, extensions, standstills — quiet, flexible, but dependent on near-unanimous cooperation.
- A court moratorium (Nachlassstundung), creating protected room to negotiate a composition with creditors or prepare a sale.
- A sale of the business or its viable parts, inside or outside a formal proceeding.
- An orderly insolvency filing, where the other paths are not fundable or not credible.
If a memo presents only one path, ask what happened to the others. If it presents five without ranking them, ask which one the adviser would take.
What each scenario must spell out
Naming scenarios is easy. A memo becomes useful when each scenario carries four things.
First, feasibility: what the scenario requires to work — how much money, whose consent, which conditions — and a frank view of whether those requirements are realistic here.
Second, consequences for the board: what each path means for the directors' duties and personal exposure, including what the board must do and document while the path is being pursued.
Third, consequences for creditors and employees: who is likely to recover what, in rough terms; which contracts and jobs survive in which scenario; what consultation or information duties arise. Boards consistently underestimate how much the treatment of employees and key suppliers determines whether a plan holds.
Fourth, decision points: the dates or events at which the board must choose, what information it will have by then, and what happens by default if it does not decide. A restructuring rarely fails because of one bad decision; it fails because decisions were never explicitly made.
What a good memo looks like
Short. A board in crisis does not need forty pages; it needs the scenarios, a comparison, a recommendation and the triggers, ideally with the numbers and assumptions stated so they can be challenged. It should be dated and versioned, because the facts will move and the memo must move with them.
It should also be signed, in substance if not in form: a named lawyer who stands behind the recommendation and can defend it in front of the board. Structured drafting and document review can be accelerated by capable systems — we use them ourselves — but the recommendation is a human responsibility, and the board is entitled to know whose.
How to demand it
When you instruct counsel in a distress situation, say what you want at the outset: not a legal opinion, but an options memo. Ask three questions of the draft you receive. Which options did you exclude, and why? What does each remaining option require to be feasible, and do we have it? What must we decide, by when, and what happens if we don't?
An adviser who can answer those questions is giving you advice. One who cannot is giving you cover. Boards in distress need the former. If your company is facing these choices, we are happy to discuss what an options memo would look like for your situation.