Corporate Governance in Ch 11

Question 1

What are the 3 ways firms retain managers in bankruptcy?

Answer 1

1) KEIPs (Key employee Incentive Plans)
2) KERPs (Key employee retention plans)
3) pre-bankruptcy bonuses (FT concern)

Question 2

Which plan allows the creditors the most influence over the managers?

Answer 2

KEIPs - research shows they actually move cases through faster with better outcomes for the creditors

Question 3

What statute is relevant to manager retention compensation?

Answer 3

503(c) is relevant to KERPs and applies a Kmart like analysis as a prerequisite to admin priority
KEIPS only have to be justified under the facts and circumstances of the case

Question 4

Who does management report do?

Answer 4

DIP Lenders; creditors committee (waning); US Trustee looks for fraud and abuse; scared of the examiner

Question 5

When can the court appoint an examiner?

Answer 5

If there is no bankruptcy trustee and either (the appointment is in the best interest of the debtor) or (debts >5M)

Question 6

Why can a firm settle pre-bankruptcy derivative suits against its officers

Answer 6

Firms can abandon property that is a burden to the estate under 554, and the inability to confirm a plan because of a lawsuit is a burden. Texaco court looks to the overall benefit of the plan not the particular provision