Journal · Key-Person Risk
Wistaria Key Man Manifesto Part 3.
Author: Scott Moscowitz / Wistaria Advisors
July 2026 · Free Consultation
The morning a key-person event happens, nobody has time to draft anything. The businesses that survive intact are not the ones with the largest policies. They are the ones whose documents have been re-read recently — and whose lenders, LPs, and counsel have a defined next move before the phone rings.
Continuity is a documentation problem
The instinct is to treat a key-person event as a leadership problem. In the first six months it is not. It is a documentation problem: who has authority to sign, where the proceeds land, which covenants have just been tripped, and what constitutes cure. Leadership succession is the second act. Getting through the first act intact is what makes the second act possible.
The first 24 months, on a timeline
| Window | What actually happens |
|---|---|
| 0–72 hours | Notification, communications lockdown, counsel engaged. Lender and LP calls scheduled. |
| Week 1 | Formal notice to lenders, LPs, and material customers. Interim operating authority documented. |
| Weeks 2–6 | Covenant review; any key-person or MAE clauses triggered; claim filed; interim leadership stood up. |
| Months 2–6 | Search and transition; claim proceeds funded to designated account; covenant cure executed or renegotiated. |
| Months 6–24 | Permanent leadership seated; policy proceeds fully deployed against covenant cure, buyout, or operating stabilization. |
The LP-ready file
LPs and senior lenders don't want reassurance. They want documents. A defensible key-person file is a short, dated, cross-referenced set — not a binder no one has opened since the last raise.
| Document | Why it's in the file |
|---|---|
| Board & LP notification protocol | Removes ambiguity in the first 48 hours. Named contacts, named signers, named decisions. |
| Policy ownership & beneficiary schedule | Confirms proceeds land where the covenants require, not where the will happens to point. |
| Interim operating authority (POA / delegated signatory) | Keeps payroll, vendor payments, and lender covenants running while the org catches its breath. |
| Buy-sell agreement, funded and current | Turns 'we'll figure it out' into a defined transaction with a defined price. |
| Cross-references to loan and LP documents | Lets counsel demonstrate cure in days, not months. |
Buy-sell agreements: funded, or fiction
An unfunded buy-sell agreement is a promise between people who no longer have equal bargaining power. Once one party is gone, the other has every incentive to renegotiate the price downward, and the estate has every incentive to challenge the mechanism. A buy-sell funded by properly sized, properly owned life insurance turns a promise into a transaction — priced, dated, and executable within weeks rather than years.
FAQs
What is a 'key-person event' in practice?
The death, disability, or unplanned departure of a named individual whose absence triggers a contractual right somewhere in the capital stack. The event is defined not by drama but by documents.
Why do LPs care so much about this?
Because they underwrote the manager, not the fund name. When the manager is gone, LPs have a fiduciary obligation to their own beneficiaries to test whether the remaining team can deliver the returns that were sold. The key-person clause is how they exercise that obligation quickly.
Is a buy-sell agreement enough?
A buy-sell is necessary, not sufficient. It defines the transaction but does not fund it. Life insurance owned inside the buy-sell — sized to the actual purchase price, not to a round number — is what turns the agreement into a real instrument.
What's the single most common failure mode?
Documents that are technically in place but haven't been re-read since the last capital raise. Beneficiaries out of date, coverage sized to the business as it was three rounds ago, and no clarity on who has authority to sign what on day one. All fixable in advance. None fixable after.
Key takeaways
- A key-person event is a documentation event first and an emotional event second. The businesses that survive have re-read the documents recently.
- Sequence matters. The first 72 hours set the tone for everything that follows — notification protocol, interim authority, and lender/LP contact list belong on paper before they're needed.
- Buy-sell agreements need to be funded, current, and cross-referenced to the actual capital-stack documents — not filed and forgotten.
- LP-grade documentation is not paranoia. It is what allows a business to demonstrate cure in days rather than months, which is often the difference between continuity and forced sale.