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Limiting the Effect of BAPCA
I once knew a senior executive of a debtor client who was well known within our bankruptcy practice for wanting nothing more from his/her company's Chapter 11 case than court approval of the company's key employee retention program. That is not to say that this particular executive was in any way unique. To the contrary, he/she was merely illustrative of the running joke among many bankruptcy practitioners that the first question asked by an executive of any new Chapter 11 debtor is, 'Have the petitions been filed?' And the second question is, 'Who's negotiating the executive bonus program?'
Lurking behind the smile of every attorney who laughed at that joke, however, lies a very real concern: namely, that retaining key employees and talented executives through the course of a Chapter 11 case is no easy task. Working for a Chapter 11 debtor provides an executive with substantial career uncertainty. In exchange for such uncertainty, the executive is asked to take on substantially increased responsibility, deal with angry creditors and equity holders, and respond daily (if not hourly) to attorneys and financial advisers for any number of often unfriendly constituents ranging from the official committee of unsecured creditors to the Office of the United States Trustee (the 'UST'). In order to pacify fearful and overworked executives and to incentivize qualified executives to remain employed by Chapter 11 debtors, creative professionals and Chapter 11 executives developed what has become known as a key employee retention program, or KERP. These programs provide bonuses to executives and other key employees if they remain employed by the debtors through a date certain (often consummation of a plan of reorganization or similar benchmark). Additionally, these programs often offer severance payments to employees who are expected to be terminated without cause during the course of a Chapter 11 liquidation. Until the adoption of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ('BAPCA'), KERPs were widely and successfully utilized by Chapter 11 debtors to ensure that top talent did not leave for greener, more certain, and usually less demanding pastures.
Section 503(c) Under BAPCA
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