Sadly, there are many ethical mistakes that have led to business bankruptcy. These include failure to disclose material information, conflicts of interest, and failure to apologize. You must do your best to avoid them. If you do, you will be in a better position to ensure that your business doesn’t end up in a bankruptcy situation.
Conflicts of interest
During a business bankruptcy, conflicts of interest can lead to a lawyer’s disqualification from employment. A lawyer may represent both a client, such as a debtor, and a creditor, such as a bankruptcy trustee. If the lawyer’s employer is a creditor, he or she can be disqualified from employment. The lawyer may be required to disgorge all fees and expenses incurred in the case. The court may also disqualify the lawyer if the law firm, the attorney’s employer, is in a conflict of interest.
In a recent Tennessee appeals court decision, a lawyer was found to be in a conflict of interest and sanctioned by the Bankruptcy Panel of the Eighth Circuit. In this case, a lawyer represented the plaintiff, a creditor, in a personal injury claim against a product manufacturer. The lawsuit was filed in a Chapter 13 bankruptcy proceeding and the creditor had proof of claim against the defendant. The bankruptcy panel affirmed the sanction.
Failure to apologize
Almost every company makes ethical mistakes, and if they aren’t properly apologized for, they can have a very damaging impact on your business. If you want to avoid a disastrous reputation, you have to do what you can to make sure that you don’t do anything that will be harmful to your customers and business. Here are some tips to ensure that your apology is effective.
An effective apology includes several elements, including words, actions, and a credible commitment to change. In his book On Apology, Aaron Lazare, dean of the University of Massachusetts Medical School, discusses the four stages of an effective apology. These include: recognizing regret, demonstrating the best possible reason to apologize, telling people you’re sorry, and asking for forgiveness. The Harvard University Project on Negotiation has also offered advice on how to create an effective apology.
The simplest way to incorporate all the components of an effective business apology is to explain what went wrong, what you’ve done to correct it, and what you plan to do to prevent it from happening again.
No harm, no foul approach
Using a “no harm, no foul” approach to business bankruptcy may make it difficult for a trustee to obtain a transfer of property. However, it does not eliminate the ethical questions that arise when a debtor’s counsel makes a bad decision. The debtor must understand what advice his or her lawyer is providing and if the advice is correct.
The debtor must also disclose all the facts to the court. The courts will analyze the law based on what happened. The Fourth Circuit, for example, holds that a false statement is material only if it is material to the case. The Seventh Circuit, on the other hand, has dismissed the case because of a lack of jurisdiction. This is because, under the old Bankruptcy Act, exempt property was not part of the bankruptcy estate.
The 8th Circuit, on the other hand, rejected the “no harm, no foul” approach. It remanded the case back to the bankruptcy court to resolve issues of insolvency and fair consideration.