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Financially distressed companies face a host of challenging legal issues when a potential reorganization or dissolution is on the horizon, especially in the balancing of fiduciary duties to constituents such as creditors, shareholders, customers, and employees. Among these are a variety of federal and state laws governing employee compensation that can offer snares for the unwary. Particularly when a company is teetering on the brink of insolvency, in-house counsel are faced with protecting the corporation from liability as well as with shielding corporate officers from personal responsibility for unpaid severance claims.

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