475 B.R. 209
Bankr. D. Del.2012Background
- Blitz USA, Inc. sought court approval of an EBITDA-based employee bonus plan for FY2012 (the Bonus Plan).
- Blitz filed for chapter 11 bankruptcy on November 9, 2011; the company continues as debtor in possession.
- The Bonus Plan had been in place since 1992, with EBITDA-based targets adopted in 2008 and adjusted for a spinoff of F3 Brands in 2011.
- Targets were set pre-petition; the first EBITDA target for 2012 was lowered to $5 million after F3’s spin-off.
- All Blitz employees are eligible; targets determine bonus levels, with the top level receiving substantial percentages of base salary.
- DIP lenders indicated support for paying the first incentive, and the motion sought approval for payments tied to the first two EBITDA targets.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Bonus Plan an ordinary course transaction? | Committee argues it is outside ordinary course; seeks 503(c)(3) review. | Debtors contend it is ordinary course under 363. | Yes, ordinary course. |
| If ordinary course, does the plan pass the business judgment standard? | Plan was reasonable and approved by prior process; designed for motivation. | Approval process and targets may lack disclosure or write-up, but good faith remains. | Yes, passes business judgment. |
| Are the EBITDA targets and payouts justified given prepetition and post-spinoff context? | Targets reflect market comparables and adjustments for F3 spin-off; payouts align with past practice. | Some argue targets may be stretched and higher due to bankruptcy effects; objections lack force. | Yes, justified under the facts and circumstances. |
Key Cases Cited
- Nellson Nutraceutical, Inc. v. B. R. (Bankr. D. Del.), 369 B.R. 787 (Del. 2007) (two-part ordinary-course analysis: vertical and horizontal dimensions)
- In re Dana Corp., 358 B.R. 567 (S.D.N.Y. 2006) (two-part test for ordinary-course transactions)
- In re Global Home Prods., LLC, 369 B.R. 778 (Del. 2007) (ordinary-course inquiry for incentive plans in bankruptcy)
- Roth Am., Inc., 975 F.2d 949 (3d Cir. 1992) (vertical vs. horizontal analysis for ordinary-course determinations)