When a Project Company is in financial difficulty, it is important that directors' duties are well understood by the Procuring Authority, which will require specialised legal expertise. In most jurisdictions, directors' duties with respect to the Project Company are completely separate from those of the construction company or any other equity investor - they must act in the best interests of the Project Company and not be conflicted by any other interests (e.g. in an equity investor, sponsor or contractor).
This is a challenge in itself, as the directors are typically selected by the equity investors or sponsors and will feel loyalty to their employer, which might not be aligned to the other stakeholders on the project. There are further challenges in several jurisdictions where directors can be held personally liable for certain company debts and, in some cases, have a fixed period to file for a company's insolvency when there is evidence of it being insolvent.
These circumstances, which are specific to the project finance arrangements affecting Project Companies, add additional layers of complexity that need to be understood by the Procuring Authority when working with directors of the Project Company. Additional challenges will arise when the Procuring Authority has representatives on the board of directors of the Project Company.