Rebuilding a board's paper trail with nine days left on the clock

The situation

Nine days. That was what stood between Gabriela and a decision she had not expected to be making when she woke up that Tuesday. A letter had arrived from a regulator days earlier addressed to Kerem, one of the company's directors, notifying him that he was the subject of an investigation into conduct connected to his role on the board, and giving him a set deadline to respond. Kerem, in turn, had come to Gabriela with a request: the company needed to advance the money for his legal defence, and he needed an answer well before that deadline arrived.

Gabriela was the second-generation owner of the company, a mid-sized operation that had grown steadily under her father before she took it over, now generating revenue in the low millions. She had inherited the business, but she had not inherited a full understanding of every promise her father's board had made to its directors over the years, including whatever arrangement, if any, existed to cover a director's legal costs if regulatory trouble ever found its way to the boardroom.

The company's bylaws contained a standard indemnification clause, the kind most Ontario companies carry, allowing the board to indemnify directors for costs reasonably incurred in connection with their role, provided they had acted honestly and in good faith. What the bylaws did not settle was whether that indemnification obligation extended to advancing costs before the outcome of an investigation was known, while Kerem was still, technically, only accused of something rather than found to have done it.

Daniela, an adjuster with the company's directors and officers insurer, had also entered the picture almost immediately, and her position complicated things further. The insurer was reviewing whether the policy would respond to Kerem's situation at all, and until that review concluded, Gabriela could not assume the company's insurance would simply absorb the cost if the board decided to advance it. The nine-day deadline did not care that both questions, the company's own obligation and the insurer's position, were still open.

Kerem had served on the board for six years, first appointed by Gabriela's father and kept on when Gabriela took over the company. His board seat was not his living; he worked full time as a registered nurse, which was exactly why funding a serious regulatory defence out of his own pocket was not realistic on short notice. He was well liked, and the investigation, whatever it eventually found, did not automatically say anything about his character. But the letter from the regulator was specific about the deadline, and specific enough about the conduct at issue that Kerem's own lawyer had told him the early weeks of the response would be the most expensive and the most important, which was exactly why he needed an answer from the company before those weeks slipped by.

Where it went wrong

The company should have had a clear answer to Kerem's request within a day or two. Advancing defence costs to a director under investigation is a well-understood corporate practice, and most companies of this size have either a specific board resolution authorizing it in defined circumstances or, at minimum, a clean history of similar decisions to draw on. Gabriela's company had neither, not because no such decision had ever been made, but because the paperwork behind it had not survived the transition from her father's ownership to hers.

The company's minute book, which should have contained the board resolutions authorizing the indemnification provisions and any prior decisions about advancing costs, had significant gaps covering roughly the period when the original indemnification arrangement would have been put in place. Some records appeared to have been lost during an office move several years earlier. Others existed only as passing references in old email threads, never formalized into proper resolutions, an informal habit that had apparently suited her father's more relaxed style of governance but left almost nothing usable when a genuine deadline arrived.

This mattered more than a bookkeeping inconvenience. Without clear documentation of what the board had previously agreed to indemnify, Gabriela could not simply point to precedent and approve Kerem's request the way a company with an intact record might have. Nor could she safely refuse it without knowing whether doing so would breach an obligation the company had, in fact, already made years earlier, just never written down.

Kerem, for his part, was adamant that an informal understanding had existed since before Gabriela's time, that directors facing this kind of exposure had always been told the company would stand behind them. He was not wrong to believe it. He simply had no signed document to prove it, which left Gabriela needing to verify a promise that might genuinely have been made, on a timeline that gave her almost no room to do it properly.

There was also a practical wrinkle sitting underneath the missing paperwork. Even if the company decided in principle to advance Kerem's costs, the board needed a resolution authorizing the specific amount and the conditions attached to it, and a resolution needs to reference the authority it is being made under. Without a clean indemnification history to point back to, any resolution the board passed now risked looking improvised, drafted to fit the moment rather than grounded in a policy the company had actually held all along, which was not a strong position to be in if the advance were ever questioned later, by the insurer or by anyone else.

What we did

1. Triaged the nine-day deadline immediately. Before touching the missing records, we confirmed exactly what had to happen within Kerem's response window and what could reasonably wait, which meant the company needed to reach a defensible position on partial funding within days, not a complete answer to every open question about its history with directors before this one, some of which could reasonably wait until after Kerem's deadline had come and gone.
2. Reviewed the surviving minute book entries and bylaws. We pulled together everything that did exist, including the standard indemnification clause in the bylaws, to establish the baseline obligation the company clearly owed Kerem regardless of any dispute, keeping that documented floor separate from whatever additional, undocumented arrangement he sincerely believed had been made with her father over the years the two of them worked together.
3. Reconstructed the missing period from secondary sources. We worked through years of email correspondence, old accounting records, and interviews with a former office manager to piece together what the board had likely decided during the gap, treating each piece as evidence rather than proof, since none of it, however consistent the pattern, carried the legal weight of a properly passed and recorded board resolution.
4. Pressed the insurer for a coverage position on an accelerated timeline. We contacted Daniela directly to request the insurer's preliminary view of whether the policy would respond, making clear right away that the company needed at least a provisional, even non-binding, answer well before the nine-day deadline arrived, since the funding decision itself could not sit and wait for the weeks or months a full claims review would ordinarily take to complete.
5. Drafted a board resolution authorizing a partial, conditional advance. Rather than resolve every historical question first, we recommended the board approve advancing a portion of Kerem's near-term defence costs, tied to a written undertaking that he would repay the funds personally if the investigation concluded he had not acted honestly and in good faith in his role as director.
6. Documented the decision properly this time. The resolution, the repayment undertaking, and the board's full reasoning behind the partial approach were all recorded together in a formal minute, closing at least this one gap in the company's records so a future director in Kerem's position, whoever they turn out to be, would not face the same reconstruction problem years from now.
7. Set up a process to rebuild the broader minute book. Once the immediate deadline passed, we helped Gabriela put a structured plan in place to review and formalize other undocumented board decisions dating from her father's era of running the company, so it would not be caught flat-footed again over some entirely unrelated matter, years down the road, in front of a different deadline.
8. Explained the decision to Kerem in plain terms. We made sure Kerem, who was not a lawyer and had every reason to feel anxious about the whole process, understood exactly why the company was offering a partial, conditional advance rather than the full amount he had asked for, including the genuine uncertainty around the insurer's position, so the negotiated compromise did not read to him as a lack of confidence in his case or his character.

The outcome

The board approved a partial advance of Kerem's defence costs, roughly the amount needed to cover his response within the nine-day window and the months of legal work expected to follow immediately after, tied to his written undertaking to repay the funds if the investigation found he had not acted honestly and in good faith. It was not the full, unconditional funding Kerem had originally asked for, and it was not the outright refusal the missing paperwork might have justified if the company had wanted to take the more cautious route.

The insurer's position remained unresolved by the time Kerem's deadline arrived. Daniela's preliminary view suggested partial coverage was likely but not certain, which meant the company was carrying real financial exposure on the advance until that question settled, a concession Gabriela accepted because waiting for certainty was not available given the deadline in front of her.

Kerem met his response deadline with the advanced funds in hand, and the underlying regulatory investigation continued on its own timeline, unresolved as this file closed. Gabriela said the experience changed how she thought about her father's more informal approach to governance, not as a failure exactly, but as a set of decisions that had worked fine until the moment one of them needed to be proven, and by then it was too late to go back and do it properly.

The company's exposure did not end the day the advance was approved. Because the repayment undertaking was tied to the outcome of an investigation that could take many more months to conclude, Gabriela was left tracking a contingent liability on the company's books for the foreseeable future, a modest but real number that would either resolve itself if Kerem was cleared and the insurer paid out, or become a harder conversation if it did not. The minute book review that followed turned up two other undocumented arrangements from her father's time running the company, neither urgent, both now properly recorded before they could turn into their own version of the same nine-day scramble.

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