Gordon Smith writes here about an article in today’s The Wall Street Journal that describes the successful efforts by a bankruptcy trustee in collecting money from outside directors of a bankrupt company, and why in that case it was a perfect storm for imposing liability on outside directors. One practical observation, for example, is that they were the only "deep pockets" left.

Notable about the article is a quote from Michael Klausner who co-authored an article last year in the Stanford Law Review which found only 13 cases in 25 years in which outside directors of public companies had made out of pocket payments. The perfect storm (depending on your perspective) for outside directors to pay personally, occurs, according to Klausner, "when a company’s insolvent, insurance is inadequate, the directors have access to considerable wealth, and the merits of the case are reasonable." The article does not address directly any interfacing between these findings of Klausner and the observance of "defensive" practices such as a board with a majority of independent members who have followed all the necessary procedures in order to enjoy the protection of the business judgement rule. Here is a reference on my blog to a recent Delaware case that found directors liable who purported to be acting as outside (non-employee) directors.