Bumble Bee hoping to pay executive bonuses, over objections of creditors
The creditors of Bumble Bee Foods, which filed for chapter 11 bankruptcy protection in November 2019, have asked the judge overseeing the case to prevent the company from paying year-end bonuses to some of its employees.
Bumble Bee is hoping to pay 37 of its employees enrolled in its Key Employee Incentive Program (KEIP) – created after the company filed for bankruptcy – between USD 1.3 million and USD 3.2 million (EUR 1.16 million and EUR 2.88 million) as a performance bonus for helping the company maintain cash flow during its difficult past few months.
But a 3 January filing by five of the company’s unsecured creditors, who are collectively owed millions of dollars, asked U.S. Bankruptcy Court Judge Laurie Selber Silverstein not to allow Bumble Bee to pay out the KEIP, which they said “would reward the KEIP Participants for merely continuing to perform their obligations as employees of a debtor in possession.”
Additionally, the creditors are asking that three Bumble Bee executives be removed from a separate bonus program, the Annual Incentive Plan (AIP), due to their alleged involvement in the price-fixing scandal that resulted in guilty pleas from the company and its former CEO Chris Lischewski in their criminal cases.
Two of the executives, who have their names redacted in the court filing, “repeatedly invoked their Fifth Amendment rights against self-incrimination when asked questions about the price-fixing conspiracy in depositions” and a third was mentioned by name during Lischewski’s trial, according to the filing.
“Given their alleged criminal misconduct, it would be highly unfair and inequitable, and not justified by the facts and circumstances of these cases, for these individuals to receive bonuses under the AIP or KEIP,” it said. “Accordingly, to the extent the AIP, the KEIP, or both are approved by this court, these three individuals must, at a minimum, be removed from both bonus plans.”
An offer of future employment with FCF, Bumble Bee’s stalking horse bidder, should be enough incentive for members of the KEIP to continue their work, the filing claims.
“The KEIP appears to be nothing more than an effort by the Debtors’ insiders to award themselves and senior management – certain of whom were implicated in the criminal price fixing that caused the Debtors’ bankruptcy filings in the first instance – additional outsized bonuses at the expense of their creditors,” it said. “In addition, the KEIP is tied to a single metric that requires no unusual or extraordinary efforts by the KEIP participants to trigger substantial bonuses. Indeed, the KEIP would pay out approximately USD 1 million [EUR 899,000], or 81.4 percent of the “target” amount of USD 1.3 million in bonuses, if the debtors – a stable 100-year old company with very predictable, positive cash flow – merely meet their projections for cumulative operating cash flow under their [debtor-in-possession] financing.”
While the work of the Bumble Bee executives in line for bonuses may have improved the company’s bottom-line, due to the amount of the company’s debt, their performance might not have an impact on whether its debtors are paid back, the filing claims.
“If the KEIP is approved, the KEIP participants stand to benefit handsomely by consummation of a sale that may not even pay the debtors’ secured debt in full, let alone provide for a meaningful recovery for the debtors’ unsecured creditors,” it said.
In response, Bumble Bee wrote in a court filing the KEIP participants “have taken on considerable responsibilities in addition to their day-to-day obligations managing the debtors’ businesses and maintaining relationships with employees, vendors, and customers both prior to and during the chapter 11 cases.”
“The efforts of the KEIP participants averted a liquidity crisis and facilitated the commencement of orderly chapter 11 cases with a stalking horse going-concern bid and a clear path forward,” the company’s legal representative wrote. “Absent the KEIP, the KEIP participants would not be fairly compensated for their extraordinary efforts in the chapter 11 cases and would be disincentivized from continuing their efforts at a time when their devotion and hard work is most critical.”
According to the company, the bonuses are deserved because Bumble Bee has “not lost a customer, not lost significant numbers of employees, and not lost [its] vendor base.”
“These facts brought FCF to the table as the stalking horse bidder, directly contributing to maximizing the value of the company and the chapter 11 estates. FCF was attracted to acquire the company because it saw a strong, well-managed business with a dedicated and stable workforce in the face of significant challenges,” it said.
Bumble Bee defended the conduct and performance of its three employees the creditors are demanding be removed from both the AIP and KEIP programs. Their argument is “based on inflammatory innuendo” and is “nothing more than an unfounded diversion.”
“None of the AIP or KEIP participants has been charged with any illegal conduct by the Department of Justice,” the company wrote. “If the debtors believed or knew that any of these individuals were culpable as alleged, they would no longer be employed by the debtors. No employee should be denied AIP or KEIP payments on the basis of such flimsy allegations. In the absence of actual charges brought by the Department of Justice against these individuals, the committee tries to stitch together “evidence” of alleged criminal conduct from isolated, out-of-context excerpts taken from a lengthy criminal trial transcript at which none of the individuals were present or had the opportunity to contest. This tactic is unfair, misleading, and outrageous – these individuals have not been charged with any misconduct and were not at the criminal trial. The last relevant conduct of which the debtors are aware relating to the price-fixing conspiracy was in December 2013, over six years ago. The applicable statute has a five-year limitations period, which expired in December of 2018.”
The three executives remain vital parts of Bumble Bee’s leadership team, the company argued.
“These executive functions are not ‘plug and play’ positions. The Debtors’ success and the value of these Chapter 11 estates depend on maintaining their employees’ unique knowledge and skills to quickly identify problems and propose solutions based on industry knowledge, established relationships of trust, and confidence in decision-making. The KEIP participants’ continued dedication and commitment here proves particularly critical for consummation of the sale, given the short duration of the chapter 11 cases.”
Pending objections by creditors or potential bidders, the date of Bumble Bee’s sale has been tentatively set for 23 January, though an auction could be arranged at a later date if bidders other than FCF emerge. FCF has entered a stalking-horse bid of USD 925 million (EUR 836 million) for Bumble Bee, which requires any other interested party to offer more than that amount if it wants to compete for the sale.
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