Cumulus Media’s official committee of unsecured creditors filed with the U.S. Bankruptcy Court an objection to Debtor’s motion to continue certain ordinary course incentive compensation programs and pay certain claims related thereto.
The committee asserts, “The Motion cannot be approved as to the Debtors’ senior executives for three reasons. First, the Executive Compensation Plans are not ordinary course transactions under Bankruptcy Code section 363(c)(1) because they satisfy neither the ‘horizontal’ nor the ‘vertical’ test. The Executive Compensation Plans fail the ‘horizontal’ test because they are dissimilar to other bonus programs within the Debtors’ industry, and they fail the ‘vertical’ test because they are not consistent with the Debtors’ prepetition practices.
Second, the Executive Compensation Plans should not be approved because they fail to satisfy the stringent and conjunctive requirements of Bankruptcy Code section 503(c)(1), which govern any bonus program that involves a payment to ‘an insider of the debtor for the purpose of inducing such person to remain with the debtor’s business.’ Bankruptcy Code section 503(c)(1) applies here because the Executive Compensation Plan participants are ‘insiders’ as defined under the Bankruptcy Code and the Executive Compensation Plans are retentive for the reasons set forth below.
Third, the Debtors’ arguments that cause exists to authorize the payment of prepetition obligations under the Executive Compensation Plans are unavailing. The Debtors have failed to demonstrate a critical need to pay these prepetition claims outside of a confirmed plan of reorganization. Moreover, while the Debtors’ purported justifications for paying the prepetition obligations (i.e., preserving culture and employee morale) may have supported approval of the Motion as to the Debtors’ ‘rank and file’ employees, these same arguments ring hollow with respect to the Debtors’ senior executives. For these reasons, the Motion should be denied.”
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