A plan - filed under seal - to reward employees for staying on board, rather than for performance, does not sit well with U.S. trustee.
Mike Moreno's Green Field Energy Services, which filed for Chapter 11 bankruptcy protection Oct. 23 along with affiliated companies Hub City Tools and Proppant One, told the court on Dec. 17 that it wants to pay bonuses to its employees.
That plan, filed in U.S. bankruptcy court in Delaware, is not sitting well with U.S. Trustee Roberta A. DeAngelis, who said in court documents Dec. 31 that the "Bonus Plan" is more about keeping the employees from jumping ship, rather than rewarding them for job performance. Retention bonuses for high-level employees are illegal in bankruptcy; they must be tied to challenging goals that require officers to perform at a high level so that the company can successfully restructure. Even then, such bonuses are being more closely scrutinized by the courts.
The debtors, Green Field Energy Services, Hub City Tools and Proppant One, all of which list their mailing address as 4023 Ambassador Caffery Parkway, Suite #200, in Lafayette, filed a motion to seal all significant portions of the Bonus Plan. DeAngelis points out that the debtors did not file in the record a list of the job description, reporting relationship, or the award amount that each insider participant would be entitled to receive under the Bonus Plan. While details of the plan were redacted in the court filing, the debtors did provide the list to the trustee on a confidential basis.
DeAngelis makes it clear she objects to Green Field's "Bonus Motion," which cites a key employee incentive plan and a key employee retention plan, writing:
In the Bonus Motion, the Debtors are requesting that this Court approve an "incentive plan" for the certain of the Debtors' employees, which includes insiders, that will provide bonus payments upon the achievement by the Debtors through these employees of certain post-petition sale milestones, as a proper exercise of the Debtors' business judgment. The Debtors' Bonus Plan, however, bears the attributes of an insider retention plan without satisfying the stringent standards of section 503(c)(1) of the Bankruptcy Code ... In the alternative, the proposed payments to insiders under the Bonus Program is outside the ordinary course of the Debtors' business and is not justified by the facts and circumstances when each of the post-petition sale milestones are too low to provide a benefit to creditors who have claims against the Debtors' estates.
She filed a separate motion objecting to the seal.
On Dec. 19 ABiz reported on Green Field's plan to sell its assets. Moreno's company (Billy Rucks and Kevin Moody are minor investors, according to Green Field's annual report) hopes to reorganize its approximately $500 million in outstanding debt - about the same amount it lists in assets.
The Lafayette-based company, the first to run its hydraulic fracturing equipment on natural gas, plans to put its assets on the auction block and conduct a Section 363 sale under the supervision of Judge Kevin Gross of the U.S. Bankruptcy Court in Wilmington, Del.
It now appears that the proposed bonuses are tied to certain monetary thresholds established for the asset sale, a plan that could substantially boost officers' salaries. "The Bonus Plan Sale Parameters has varying thresholds of gross sale amounts, which if reached the Insider Participant would be entitled to receive a bonus payment representing an identified percentage of each participant's base salary," DeAngelis writes.
If the gross sales amount is higher than the established thresholds, the plan calls for an additional pool of insiders to receive a "stretch bonus," and the pool of employees could potentially even be expanded beyond insiders. Insiders are generally defined as "a person holding the title of an officer, including vice president," according to the court.
Read "Moreno's Green Field aims to sell" here.
The law is clear that the burden is on Green Field et al to either show that the proposed Bonus Plan complies with the requirements of the law or that they are not disguised retention plans, according to DeAngelis' objection.
In addition to hydraulic fracturing, the Green Field entities also provide cementing, coiled tubing, pressure pumping, acidizing and other pumping services.