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During a financial transaction, an Independent Director plays a critical role by sitting on the board of directors for a special purpose entity and helping to manage the loan. An effective Independent Director must be trustworthy – able to make a measured decision regarding bankruptcy should the issue arise. CT’s Director of Corporate Staffing, Vic Duva, highlights how to best choose an Independent Director and what qualities are most important for this essential role.
My name is Vic Duva. I am the Director of Corporate Staffing at CT. I’ve been with CT for 35 years, and I’ve been the Director of Corporate Staffing since 2003.
An independent director is part of the board of directors of a special purpose entity (SPE). A special purpose entity is set up during the financial transaction—which is usually a commercial real estate property—and that special purpose entity is set up for managing the loan. An independent director sits on that board. We do not have any fiduciary responsibilities, but our main responsibility is to vote on a bankruptcy if required to do so.
Why would someone need an independent director? The lender is going to require it. The key characteristics of an independent director? Look for someone you can trust. That would be first and foremost. They have to remain independent between the lender and the borrower. Along with that you need to look for someone who is responsible. If the loan doesn’t go according to plan, a bankruptcy vote is required. You’re looking for someone who has a workflow in place—who reviews all aspects of the proposed bankruptcy, knows how to handle it and would vote accordingly. Don’t make your decision based on price. Base it on their experience and responsibility. That’s what you’re looking for. Costs sometimes are very deceiving.
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