On November 5, 2013, Judge Brendan Linehan Shannon of the United States Bankruptcy Court for the District of Delaware (the “Court”) granted the motion of the Oliver Parties’ 1 for allowance of an administrative claim (“the “Motion”) based on post-petition management services provided to debtors, Indianapolis Downs, LLC and Indiana Downs Capital Corp. (collectively, the “Debtors”). In re ID Liquidation One, LLC, et al., (Bkrtcy. D. Del. 2013).
By way of background, the Debtors operated a combined horse racing track and casino. Pursuant to the terms of a 2010 Consulting and Credit Enhancement Agreement (the “Agreement”), the Oliver Parties, through Mangano, provided post-petition services to the Debtors as CEO from the petition date of April 7, 2011 through the sale date of the debtors’ business on February 20, 2013 (the “Post-Petition Services Period”). The Motion sought an administrative claim in the amount of $3.85 million for the Post Petition Services Period based on the Agreement rate of $2.2 million per year. While not disputing that the Agreement was executory, certain objectors 2 to the Motion (the “Objectors”) argued that (i) the services provided by Mangano were minimal and of a non-executive nature; (ii) the pay terms of the Agreement should not govern as the Agreement was an insider agreement signed by Mangano, both on behalf of the Debtors and on behalf of the Oliver Parties, and (iii) the Agreement’s $2.2 million per year rate was in excess of the appropriate market rate.
Based on the evidence presented, the Court concluded that Mangano had provided executive management services as CEO, but that the Objectors presented sufficient evidence based on the insider status of the transaction to defeat the presumption that the Agreement’s terms represented the reasonable value of the services provided. The Court determined that the best evidence of fair market value was a prior offer made by the Debtors to an intended replacement for Mangano in the amount of $1.62 million per year. The Court calculated the disputed administrative claim using $1.62 million per year as the fair market value amount to award the Oliver Parties a reduced administrative claim in the amount of $3.04 million.
A copy of the Court’s opinion is available here.
1 The Oliver Parties consist of Ross J. Mangano (“Mangano”), as trustee of the Jane C. Warriner Trust dated February 26, 1971; the J. Oliver Cunningham Trust dated February 26, 1971; and the Anne C. McClure Trust dated February 26, 1971; and Troon & Co.
2 The Objectors are Fortress Credit Opportunities Advisors LLC and the Ad Hoc Second Lien Committee.