478 B.R. 154
Bankr. S.D.N.Y.2012Background
- Debtors Residential Capital, LLC and affiliated debtors filed Chapter 11 on May 14, 2012 and seek approval of a KEIP for 17 insiders.
- KEIP would award between $4.1 million and $7 million total, vesting upon milestone events tied to two asset sales.
- Approximately 63% of KEIP awards could vest upon closing of the two pre-petition negotiated asset sales (Platform Sale and Legacy Sale) without additional financial hurdles.
- The UST objects, arguing KEIP is primarily retentive and should be governed by §503(c)(1) rather than §503(c)(3).
- Debtors contend KEIP is primarily incentivizing under §503(c)(3) because it rewards performance, not merely staying employed.
- Court finds the KEIP primarily retentive as designed and denies the Motion without prejudice, suggesting modification with UST/constituencies could be pursued.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether KEIP is primarily incentivizing or primarily retention-based | Debtors argue KEIP is primarily incentivizing under §503(c)(3). | UST contends KEIP is primarily retentive and falls under §503(c)(1). | KEIP deemed primarily retentive; §503(c)(1) applies. |
Key Cases Cited
- In re Dana Corp., 358 B.R. 567 (Bankr.S.D.N.Y. 2006) (fitness of KEIPs under §503(c) and 'pay for value' standard)
- In re Borders Grp., Inc., 453 B.R. 459 (Bankr.S.D.N.Y. 2011) (approval of KEIP with going‑concern/asset sale targets and cost reductions)
- In re Hawker Beechcraft, Inc., 479 B.R. 308 (Bankr.S.D.N.Y. 2012) (retention plan considerations; KEIP characterization scrutiny)
- In re Velo Holdings Inc., 472 B.R. 201 (Bankr.S.D.N.Y. 2012) (KEIP metrics tied to sale proceeds with financial hurdles)
- In re Global Home Prods., LLC, 369 B.R. 778 (Bankr.D. Del. 2007) (purpose of §503(c) to restrict executive bonuses in bankruptcy)