When a business experiences an acute cash flow shortfall and is unable to access conventional sources for additional financing, directors and officers of the company are presented with difficult choices. Preserving the value of the business for all stakeholders is critical, and directors and officers, quite rightly, will exhaust all available avenues to unlock liquidity to maintain operations and preserve the business. It may be tempting for directors and officers to use funds designated for another purpose to cover essential operating expenses in the short term, expecting that those funds may be replaced once additional revenues are generated. The impulse to preserve the business at all costs, however, must be checked against the legal and fiduciary realities that directors and officers face.
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