On July 9, 2012, Judge Peter J. Walsh of the United States Bankruptcy Court for the District of Delaware issued a Memorandum Opinion in In re Blitz U.S.A. Inc., et al. (Case No. 11-13603 (PJW)), holding that the Debtors’ proposed EBITDA-based employee bonus plan (the “Bonus Plan”) was an ordinary course transaction that the Debtors were authorized to make without notice and a hearing under 11 U.S.C. § 363(c)(1). In so doing, the Court rejected the Unsecured Creditors’ Committee’s (the “Committee”) argument that the transaction should be analyzed as a non-ordinary course administrative expense under 11 U.S.C. § 503(c)(3).
The Debtors are primarily gas container manufacturers with a small non-gas container enterprise that was spun off shortly before the bankruptcy filing. After filing for bankruptcy – precipitated primarily by product liability defense costs – the Debtors sought approval of the Bonus Plan. The Debtors argued that the Bonus Plan was an ordinary course transaction that should be evaluated under §363(c)(1) since (i) they had maintained a bonus plan since 1992, even if the EBITDA-based plan had only in place since 2008; and (ii) such plans were common to the industry. The Committee objected, arguing that the Bonus Plan should instead be evaluated under §503(c)(3) since (i) the average payment per employee was higher than in prior years; and (ii) suspended defense costs, due to the automatic stay, should have made the EBITDA estimates higher.
Judge Walsh adopted the Debtors’ arguments. First, he found that the Bonus Plan was an ordinary course transaction based on (i) the long history of bonus plans at the company and (ii) such plans being common in the industry. He then found that the Bonus Plan passed §363’s business judgment standard, noting that (i) the average payment per employee was higher due to the loss of the spinoff’s employees; and (ii) despite suspension of defense costs due to the automatic stay, the Debtors’ EBITDA was still negatively affected by the bankruptcy filing itself and a recent increase in product costs. Thus, Judge Walsh overruled the objection and approved the Bonus Plan.
A copy of the opinion can be found here.