GTAT: Noninsider Retention Plans Subject to Heightened Scrutiny

Debtors are often thallenged to retain key, highly-skilled employees during a chapter 11 case. To combat this challenge, debtors and their professional advisors often develop and propose a "key employee retention plan" (KERP), which pays bonuses to noninsider employers to convince them to...

Full description

Saved in:
Bibliographic Details
Published in:American Bankruptcy Institute journal 2015-10, Vol.34 (10), p.24
Main Author: Fischer, Jeremy R
Format: Article
Language:English
Subjects:
Bankruptcy
Bankruptcy Abuse Prevention & Consumer Protection Act 2005-US
Bankruptcy reorganization
Compensation plans
Debtors
District courts
Employees
Federal court decisions
Federal courts
Incentive plans
Retention
Special counsels
State court decisions
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Debtors are often thallenged to retain key, highly-skilled employees during a chapter 11 case. To combat this challenge, debtors and their professional advisors often develop and propose a "key employee retention plan" (KERP), which pays bonuses to noninsider employers to convince them to remain with the debtor during the reorganization process. In 2005, as part of the Bankruptcy Abuse Prevention and Consumer Protection Act, Congress added § 503(c) to the Bankruptcy Code to limit bonus payments by debtors. Since that time, the weight of authority has held that bonus payments intended to retain noninsider employees are subject to the "business-judgment" standard, regardless of whether the payments are scrutinized under § 363(b)(1) or 503(c)(3). In a recent bankruptcy appeal in New Hampshire, however, the district court not only held that § 503(c)(3) exclusively governs approval of noninsider KERPs, but also that the section's "facts and circumstances" test imposes a higher standard than mere "business judgment," requiring the bankruptcy court to make its own independent determination about whether the proposed KERP is justified in any particular case.
ISSN:1931-7522