491 B.R. 73
Bankr. S.D.N.Y.2013Background
- Debtors seek approval of KEIP for six insiders and Executive KEIP, plus KERP for 155 non-insiders, totaling about $7.8 million across 163 employees.
- The motion is opposed by the UST, who argues plans are primarily retentive and lacks detailed disclosures of individual payments.
- Hearing occurred April 11, 2013; declarations were admitted and redacted information was permitted to be filed.
- Platform sale and extensive wind-down remain ongoing; substantial assets ($1 billion FHA/VA loans and other assets) to monetize for creditors.
- Estate retains ~1.6 billion in assets to be monetized, requiring continued operations and key personnel through wind-down.
- Court previously approved a KERP for non-insiders in August 2012 and denied a KEIP in the KEIP Opinion; current proposals differ by structure and metrics.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are KEIPs permissible under 503(c)(3) as incentives rather than retention pay? | UST contends KEIPs are primarily retentive and fail 503(c)(3) criteria. | Debtors argue KEIPs are performance-based with incentivizing metrics; supported by due diligence and industry standards. | KEIPs are approved as incentives under 503(c)(3). |
| Is KERP justification proper under 503(c)(3) for insiders' retention through wind-down? | UST did not object to KERP; argues lack of need for retention is not adequately addressed. | KERP provides essential retention to complete wind-down with minimal disruption and cost, supported by evidence. | Estate KERP approved under 503(c)(3). |
| Do 503(c)(1) retention standards apply to KEIPs for insiders, requiring showing of essential retention and non-longer-than-10×/25% measures? | UST asserts insder KEIPs are subject to 503(c)(1) unless clearly incentive-based with rigorous hurdles. | Court found KEIPs primarily incentive-based, with challenging, performance-based metrics. | KEIPs are not governed by 503(c)(1); approved under 503(c)(3). |
| Are the disclosed metrics and total costs reasonable and justified under Dana II factors? | UST claims metrics may be insufficiently rigorous and costs potentially excessive. | Courts consider three-way factors; here metrics are challenging, costs are within industry norms, and due diligence was performed. | Six Dana II factors satisfied; KEIPs and KERP approved. |
Key Cases Cited
- In re Borders Grp., Inc., 453 B.R. 459 (Bankr.S.D.N.Y.2011) (retention vs. incentive analysis under 503(c); business judgment factors)
- In re Dana Corp., I, 351 B.R. 96 (Bankr.S.D.N.Y.2006) (retention vs. incentive distinction; 503(c)(1) application)
- In re Dana Corp., II, 358 B.R. 567 (Bankr.S.D.N.Y.2006) (six-factor test for 503(c)(3) justification of incentives)
- Global Home Prods., LLC, 369 B.R. 778 (Bankr.D.Del.2007) (forum applying business judgment standards to incentive plans under 503(c)(3))
- In re Residential Capital, LLC, 478 B.R. 154 (Bankr.S.D.N.Y.2012) (KEIP opinion addressing incentivizing vs. retentive purposes)