FBI bonuses questioned
Heath E. Combs -- Furniture Today, October 14, 2013
WILMINGTON, Del. - The bankruptcy court trustee in Furniture Brands International's case says its executives haven't shown why they deserve bonuses for completing a sale of the company.
U.S. Bankruptcy Court Trustee Roberta DeAngelis said in an objection to insider bonuses for a bankruptcy sale that FBI hasn't shown why its targets for the sale are difficult to meet, as contemplated by the bankruptcy code.
DeAngelis wrote that the increase from FBI's first day stalking horse bid of $166 million to the $280 million bid from private equity firm KPS Capital Partners approved by the court two weeks ago - even before an auction and sale have occurred - demonstrates that the FBI's incentive sales targets were not difficult to achieve.
A bankruptcy 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, wrote DeAngelis, who as trustee is charged with supervising the administration of the Chapter 11 case.
A hearing on the motion was set for late last week. Check www.furnituretoday. com for updates.
It's not uncommon for a trustee to raise an objection if a sale incentive looks more generous than it should be or violates the bankruptcy code, according to Joe Vann, an attorney with corporate litigation specialist Cohen Tauber Spievack & Wagner P.C.
If a bankrupt company lines up an incentive plan "to beat targets and then you just blast right through them it suggests that they weren't really stretches," Vann said, adding that the incentive plans are meant to help companies retain people whose leaving would jeopardize the reorganization value to unsecured creditors.
Last month, FBI 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 don't have inside information about the company.
Through the bonus motion, the insiders could draw from a pool of more than $3.5 million plus 3% of the excess gross sale proceeds over a "stretch" sale target.
In another bonus objection, DeAngelis said FBI executives haven't shown how their services were related to the winning $280 million stalking horse bid from private equity firm KPS Capital Partners - noting it may have been more due to the efforts of unsecured creditors, even while FBI had already hired an investment banker and financial advisor.
Before the stalking horse hearing earlier this month, Furniture Brands still supported a $260 million bid from Oaktree Capital Management, which was lower than the KPS offer.
DeAngelis also wrote that without more information, it's also hard to gauge the relative difficulty of achieving a set of liquidity targets for the company - for which bonuses also would be paid.
DeAngelis also questioned the equitability of distributing money to insiders in bankruptcy while FBI imposed hardship on employees prior to the filing. She noted that the status of FBI's $191.8 million pension plan is still uncertain and that FBI terminated some benefits for employees prior to the Chapter 11 filing.
"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.
DeAngelis also wrote that Furniture Brands executives haven't shown how they're doing more for the company in bankruptcy than they would without the bonus payment.
The motion is her second objection in the case. The first was over a break-up fee she deemed excessive from failed stalking horse bidder Oaktree Capital Management.
FBI officials were unavailable for comment.