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Trustee objects to FBI insider sale bonuses

Heath E. Combs -- Furniture Today, October 9, 2013

WILMINGTON, Del. — The bankruptcy court trustee in Furniture Brands International's Chapter 11 case filed an objection today outlining several reasons why insiders should not be paid bonuses for a bankruptcy sale.

U.S. Bankruptcy Court Trustee Roberta DeAngelis says, among other things, that FBI hasn't shown why its targets for insider bonuses are difficult to meet as contemplated by the bankruptcy code.

The trustee in a Chapter 11 case supervises its administration. FBI officials were unavailable for comment. A hearing on the bonus motion is set for Friday.
Bonuses for a bankruptcy sale are not uncommon and are meant to encourage successful restructuring.

Last month, the company filed a motion to pay bonus "incentives" based on sale proceeds and bankruptcy liquidity to seven insiders. It also proposed retention bonuses to another 48 non-insiders - employees who do not have inside information about the company.

In that motion, FBI redacted the sales thresholds and DIP funding needs for its insider bonuses. Through the bonus motion, the insiders could draw from a pool of more than $3.5 million.

DeAngelis' Wednesday objection lists several reasons for not paying the insider bonuses.

She wrote that a sale bonus plan should be tied to significant hurdles that are difficult to achieve - not simply awarded for a Chapter 11 sale, confirming a reorganization plan or exiting bankruptcy. FBI's incentive targets don't show those hurdles, she said.

In another objection to the sale incentive, she said FBI executives also haven't shown how their services were related to the winning $280 million stalking horse bid from private equity firm KPS Capital Partners.

She said KPS higher bid may have been due more to the unsecured creditors' committee negotiations than FBI executives' - noting that FBI had already hired numerous professionals including an investment banker and financial advisor.

Prior to last week's stalking horse hearing, FBI supported the lower $260 million bid from Oaktree Capital Management - even after receiving KPS higher offer the previous week.

The trustee objection also states that besides having a significantly underfunded pension plan totaling about $191.8 million - executives shouldn't get bonuses since FBI terminated some retiree welfare benefits prior to filing for Chapter 11 protection.

"The executives responsible for these events should not be rewarded with additional bonuses, especially when the bonus for sale metric appears readily achievable here," she wrote, with a footnote listing recent past incentive compensation for its top five executives.

She also argued that the liquidity incentive proposed by FBI based on DIP needs in bankruptcy is difficult to evaluate since it doesn't show why they are challenging results and that cost savings that may already have been built into its bankruptcy budget.

DeAngelis also said FBI insiders have "failed to show how the executives increased responsibilities are any different from those found in any other Chapter 11 case or that they would not perform their duties without a bonus payment."

The motion is DeAngelis second objection in the case. The first was over a break-up fee she deemed excessive from failed stalking horse bidder Oaktree Capital Management.


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