Employee Compensation Programs: A Study Of Judicial Interpretation Under BAPCPA

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Employee Compensation Programs: A Study Of Judicial Interpretation Under BAPCPA

When I decided to write an article regarding the judicial interpretation, thus far, of Congress's 2005 amendments to the United States Bankruptcy Code (known affectionately to bankruptcy lawyers as BAPCPA), affecting key employee retention programs (or KERPS), I did what any diligent researcher would do, I read other articles, written by some of the finest, astute bankruptcy lawyers in the country. Most of the articles I read on the subject provide an excellent, well rounded synopsis of pre-BAPCPA law (statutory and judicial interpretation), the initiatives to amend pre-BAPCPA law, BAPCPA itself, including the infamous, somewhat newly enacted § 503(c), and finally, a summery of the judicial interpretation thus far.

This article is not intended to provide such a broad scope of § 503(c) and its affect on KERPS. Rather, this article assumes that the reader is familiar with pre-BAPCPA law, the initiatives to amend pre-BAPCPA law, and BAPCPA itself. This article focuses solely on the judicial interpretation of BAPCPA that has taken place thus far and attempts to go beyond a review of the relief requested, granted and denied, and attempts to get inside the minds of the courts by additionally examining the comments and dialogue that took place at the hearings on the pleadings, but which did not necessarily make it into an order or written opinion. Such comments and dialogue, I believe, in these unchartered waters, is invaluable to today's commercial bankruptcy lawyer.

Keep in mind, the terms "key employee retention program" and "KERP" are, for all intents and purposes, terms of the past. In our post-BAPCPA world, no bankruptcy attorney in his or her right mind, who has studied the opinions and transcripts interpreting § 503(c) thus far, would include such terms in their filing papers or even utter such words out loud (at least not in public). Rather, as a review of the cases below shows, bankruptcy lawyers have been quite creative and savvy in not only crafting new names for employee compensation programs, but in arguing the inapplicability of § 503(c) and its strict requirements, all with one final goal: to obtain the relief that their clients require. The bankruptcy judges are listening.

This article examines cases before the United States Bankruptcy Courts for the District of Delaware and the Southern District of New York. Although other jurisdictions have considered employee compensation programs under BAPCPA, the cases decided in the District of Delaware and the Southern District of New York provide a fair representation of the issues considered nationwide. The format of this article is simple. First, this article summarizes the relief sought by the respective debtors to give the reader an understanding of the types of programs that have been proposed to courts under BAPCPA. Second, this article summarizes the orders entered by the courts, providing the reader with an understanding of the precedent that is being created. Third, this article provides a summary of the hearings on the pleadings, to the extent that hearing transcripts are available. Lastly, through a comprehensive review of the pleadings, the orders, and the hearing transcripts, this article provides comments and insight regarding the ramifications of the cases studied herein. Hopefully the information provided herein is helpful the next time you are filing, or faced with an employee compensation program in chapter 11.

With that introduction, let's b...

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