Executive Compensation and Employee Benefits under the New Code: More Trouble for Troubled Companies?
Matthew A. Feldman
Willkie Farr & Gallagher LLP; New York
Timothy R. Colman
The Blackstone Group; New York
Lisa J. Donahue
AlixPartners LLC; New York
Hon. Robert D. Drain
U.S. Bankruptcy Court (S.D.N.Y); New York
Bankruptcy Abuse Prevention Consumer Protection Act
- In 2005, Congress passed the Bankruptcy Abuse Prevention Consumer Protection Act (the “Act”).
- The Act amended several aspects of the Bankruptcy Code (the “Code”) with the intention of curbing what appeared to be abuse of the vast array of protections that the Code affords debtors.
- With the Enron collapse as the front-page example of corporate corruption, abuse and excess by corporate insiders,
- One of the many provisions that Congress amended was the ability of debtors to offer their key employees, specifically “insiders,” retention bonuses and severance packages (otherwise known as KERPs).
Read the full article. (Materials from the 2006 New York City Bankruptcy Conference)
Investigating the Investigations: Process and Policy Issues Relating to Bankruptcy Investigations
Kenneth H. Eckstein
Kramer Levin Naftalis & Frankel LLP; New York
Often, the most valuable assets held by a debtor-in-possession include causes of action against third parties. Conflicts of interest, divergent viewpoints regarding the proper allocation of limited estate resources and questions about the merits of the estate’s claims often result in the debtor refusing to bring suit on an otherwise colorable (and potentially valuable) cause of action. In fact, bankruptcy courts have recognized that it is simply not feasible to require a debtor-in-possession to sue in every circumstance where there is a mere potential for estate recovery. However, a refusal by the debtor to sue (which is almost always the result of an inherently subjective analysis) is often vigorously challenged by other estate constituencies, who claim that the debtor’s unwillingness or inability to bring the claim is “unjustified” in light of its fiduciary duty to maximize recovery for the estate. For this reason, courts have allowed other parties in interest — such as the creditors’ committee — to bring an action on the estate’s behalf when the debtor is unwilling or unable to do so.
Read the full article. (Materials from the 2006 New York City Bankruptcy Conference)
Minutes from the 2005 Winter Leadership Conference
The committee sponsored a panel discussion entitled “Going Private: What Does It Mean and Should the Public-Company Debtor Do It?” that weighed the pros and cons of public companies deregistering under the Securities and Exchange Act of 1934 upon emergence from chapter 11. Panel moderators included committee member and newsletter editor Andrea J. Pincus, a senior member of the Bankruptcy & Restructuring Group of Anderson Kill & Olick PC; Gloria J. Frank, a senior member of the Business Law Group of Anderson Kill & Olick PC; Robert L. Hockett, co-founder and managing partner of Covalent Partners LLC; and Sandra W. Lavigna, Senior Bankruptcy Counsel of the Pacific Regional Office of the U.S. Securities and Exchange Commission.
The panel noted that the issue of deregistering public company debtors – so they emerge as private, non reporting entities – has come up increasingly in many cases over the last several years driven in part by the onerous costs of ongoing public reporting and the heightened obligations of directors arising under Sarbanes-Oxley. The panel noted that negotiations among the various constituencies in a chapter 11 case concerning deregistration involve weighing various business and economic factors and extensive discussion about how to proceed in the event “going private” wins out. The panel provided a road map through the process, touching on (1) “why” – the key business and economic factors that militate in favor of deregistration, (2) “how” – the interplay between Bankruptcy Code §1145 exemptions from the securities laws and the securities rules and regulations that govern how a company with publicly traded securities can deregister upon emerging from bankruptcy, and (3) “key drafting issues” – elements and structures of chapter 11 plan documents, corporate charter documents and shareholder agreements, in order to “go private” and stay private without triggering renewed public-reporting requirements and the attendant costs.