A Delaware bankruptcy judge on Tuesday would not allow Samson Resources Corp. to immediately pay its resigning CEO a $760,000 bonus, rejecting arguments that employee morale would suffer without the award, but did permit him an unsecured claim — full payment of which is questionable as the case currently stands.
During a hearing in Wilmington, U.S. Bankruptcy Judge Christopher S. Sontchi said he agreed the slated bonus had been earned by Randy Limbacher reaching the required targets, but the vast bulk of the money would essentially be accrued prepetition compensation, which is typically an unsecured and not a priority claim under bankruptcy rules.
Moreover, there was evidence to suggest that one of the main aims of the bonus was retentive, particularly to persuade Limbacher to stay on the board of directors, instead of the primarily incentivizing compensation called for by the Bankruptcy Code, Judge Sontchi said.
“This may very well have been a disguised retention program,” the judge said from the bench, referring to Limbacher's portion of the executive bonus plan that also aims to pay and handful of other company brass. “As such it would be disallowable.”
The oil and gas producer had pushed to be allowed to honor the CEO's bonus on several grounds, including that the already-approved targets had been met, thus Limbacher had earned the salary, and that having the company go back on its bonus obligation could dampen morale for rank and file employees, who also might leave for fear they wouldn't get promised pay either.
The idea was met with resistance from the official committee of unsecured creditors, which argued that paying a bonus to a resigning CEO was a waste of money that could be going to lender recoveries.
Judge Sontchi outright rejected the morale argument, saying that it “underestimates the sophistication” of rank and file employees and that he found it hard to believe workers would quit because their “well compensated” chief executive wasn't getting his bonus.
As for the former argument, the judge said that he wasn't denying Limbacher the compensation, but giving him an unsecured claim. Judge Sontchi did, however, acknowledge that the difference between unsecured and priority claims is “night and day” in the case, in which unfunded creditors are expected to see only a 1-percent recovery if nothing changes.
Samson filed for Chapter 11 protection in September and was thought to be sailing the calm seas of a prearranged bankruptcy when it came into court with a restructuring support agreement backed by more than two-thirds of junior lenders to exchange their debt for nearly all of the oil and gas firm's equity subject to dilution.
But those waters became significantly murkier after the debtor said this past month that its restructuring deal was in danger of collapsing as the prices of energy commodities continue to fluctuate.
Counsel for Samson said in court in October that they were looking into the possibility of reworking the deal, but the replacement may represent less value for second-lien creditors. The debtor also stood firm behind its belief that a reorganization transaction rather than a bankruptcy sale still represents the best way to maximize value for the estate.
When Samson filed for bankruptcy, the company listed debts that included a $942 million first-lien revolving credit facility, $1 billion in second-lien term notes and more than $2 billion in senior unsecured notes, with much of the liabilities coming from a 2011 leveraged buyout from the founding Schusterman family led by Kohlberg Kravis Roberts & Co. LP affiliates and investors Crestview Partners, Itochu Corp. and Natural Gas Partners.
The reorganization was supposed to allow Samson, which suspended its exploration and drilling in February, to shed more than $3 billion in debt and emerge with $250 million in cash on hand that would allow it to resume the bulk of its business, according to a first-day declaration from Chief Financial Officer Philip Cook.
Samson is represented by James H.M. Sprayregen, Paul M. Basta, Edward O. Sassower, Ross M. Kwasteniet, Brad Weiland, Yosef J. Riemer and Joshua Sussberg of Kirkland & Ellis LLP and Morton R. Branzburg of Klehr Harrison Harvey Branzburg LLP.
The committee is represented by Joseph J. Farnan Jr., Joseph J. Farnan III and Michael J. Farnan of Farnan LLP and Thomas E Lauria, Glenn M. Kurtz, J. Christopher Shore, Michele J. Meises and Thomas MacWright of White & Case LLP.
The case is In re: Samson Resources Corp., case number 1:15-bk-11934, in the U.S. Bankruptcy Court for the District of Delaware.
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