661 B.R. 330
Bankr. S.D.N.Y.2024Background
- GOL Linhas Aéreas Inteligentes S.A. and affiliates (Debtors) filed for Chapter 11 protection and sought authority to continue incentive payments to employees as per longstanding programs.
- The Debtors' incentive payments—covering revenue sharing, incentive bonuses, operational supervisor, and operational reward programs—are mandated by Brazilian law and collective bargaining agreements (CBAs).
- The U.S. Trustee (UST) did not object to the current payments but argued that future incentive payments should be approved under Bankruptcy Code § 503(c), not under general authority.
- The programs have been in place since 2001, cover approximately 14,000 employees, and are said to represent standard industry practice in Brazil.
- The Bankruptcy Court had previously entered a Final Wages Order allowing these payments in the ordinary course, subject to certain notifications to the UST for larger or insider payments.
Issues
| Issue | Debtors' Argument | UST's Argument | Held |
|---|---|---|---|
| Whether incentive payments are allowed under § 363 as ordinary course business transactions | Payments are ordinary course, consistent with historical practice, mandated by law/CBAs, and industry standard | Payments require court approval under § 503(c), especially for any prospective or blanket permission | For Debtors; payments are ordinary course under both vertical & horizontal tests |
| Applicability of § 503(c) limits on such payments | Section 503(c) is inapplicable—payments are not to insiders and are incentive, not retention or severance | Section 503(c) applies to all bonus programs post-petition; concerns about insider/retention aspects | For Debtors; § 503(c)(1)-(2) not triggered; § 503(c)(3) not applicable, or else business judgment test met |
| Adequacy of factual support and disclosures | Provided all requested data, notice, and compliance with Final Wages Order, including breakdown of payees | Some data points were allegedly misleading (average vs. maximum payouts, timing, CBA coverage) | For Debtors; discrepancies immaterial, average calculation and timing explained |
| Whether prior court order (Final Wages Order) permits ongoing future incentive payments | Final Wages Order already authorizes such payments so long as process followed | Prospective approval requires individualized future court review | For Debtors; Final Wages Order suffices for authority |
Key Cases Cited
- In re Chateaugay Corp., 973 F.2d 141 (2d Cir. 1992) (establishes business judgment standard for § 363(b) use of estate property)
- Med. Malpractice Ins. Ass’n v. Hirsch (In re Lavigne), 114 F.3d 379 (2d Cir. 1997) (sets vertical/horizontal ordinary course business tests)
- Armstrong World Indus., Inc. v. James A. Phillips, Inc., 29 B.R. 391 (S.D.N.Y. 1983) (discusses ordinary course 'touchstone' as creditor expectations)
- In re Borders Grp., Inc., 453 B.R. 459 (Bankr. S.D.N.Y. 2011) (addresses insider determination for employees with director titles)
- Off. Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.), 147 B.R. 650 (S.D.N.Y. 1992) (presumption of valid business judgment)