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Full title: Objection (related document(s):271 Emergency Motion). Filed by US Trustee (Attachments: # 1 Proposed Order) (Duran, Hector) (Entered: 04/15/2021)

Document posted on Apr 14, 2021 in the bankruptcy, 5 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

Kevin M. Epstein, the United States Trustee for Region 7 (the “U.S. Trustee”), hereby objects under 11 U.S.C. § 503(c) to the Debtors’ Emergency Motion for Entry of an Order Approving Performance Bonus Payments (the “Emergency Motion”) In response to the Initial Motion, the U.S. Trustee filed the Objection to Debtors’ Motion for Entry of an Order Approving Key Employee Incentive Plan (the “Objection”).By Order entered on March 23, 2021, the Court approved the Key Employee Incentive Plan (the “Bonus Plan”) as it related to certain employees.On April 9, 2021, the Debtors filed the Emergency Motion, in which they request: (a) approval of performance bonus payments of $89,600 to the CEO and $51,200 to the COO; and (b) allowance of the performance bonus payments as administrative expenses in the chapter 11 cases.Since the parties benefitting are insiders, the Bonus Plan triggers application of section 503(c)(1).

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UNITED STATES DEPARTMENT OF JUSTICE OFFICE OF THE UNITED STATES TRUSTEE KEVIN M. EPSTEIN UNITED STATES TRUSTEE HECTOR DURAN TRIAL ATTORNEY 515 Rusk, Suite 3516 Houston, Texas 77002 Telephone: (713) 718-4650 x 241 Fax: (713) 718-4670 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: § CASE NO. § ASAIG, LLC, et al., § 20-35600 (MI) § (Chapter 11) § Jointly Administered DEBTORS1 § OBJECTION OF THE UNITED STATES TRUSTEE TO DEBTORS’ EMERGENCY MOTION APPROVING PERFORMANCE BONUS PAYMENTS TO THE HONORABLE MARVIN ISGUR UNITED STATES BANKRUPTCY JUDGE: Kevin M. Epstein, the United States Trustee for Region 7 (the “U.S. Trustee”), hereby objects under 11 U.S.C. § 503(c) to the Debtors’ Emergency Motion for Entry of an Order Approving Performance Bonus Payments (the “Emergency Motion”) [Dkt. No. 271], and represents as follows: 1 The debtors and debtors in possession these chapter 11 cases, along with the last four digits of their respective Employer Identification Numbers, are as follows: Aztec / Shaffer, LLC (2038); and ASAIG, LLC (2323). The Debtors’ service address is: 601 W. 6th Street, Houston, Texas 77007.

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I. Summary of Argument The Debtors attempt to benefit the well compensated CEO and COO by revisiting the approval of a flawed Bonus Plan. At the March 18 hearing on the Initial Motion, the Debtors did not present any evidence in support of the requirements of section 503(c)(1). As a result, the Court found that the Debtors’ CEO and COO are insiders and excluded them from the Bonus Plan. In its second attempt, the Debtors’ Emergency Motion also fails to meet the requirements of section 503(c)(1) and (c)(3). The Debtors do not dispute that the CEO and COO are insiders. Absent a finding of the Court based on evidence, the CEO and COO are bound by the dictates of section 503(c)(1) and not entitled to any benefit that may have induced them to remain with the Debtors’ business. The Debtors did not and have not established any metrics or performance benchmarks that justify the Bonus Plan payments. Even if the Bonus Plan were subject to section 503(c)(3), which it is not, the Bonus Plan nonetheless fails to satisfy the “facts and circumstances” standard. A large portion of the Bonus Plan payments would go to the insiders. The proposed payments are not reasonable in the context of cases with limited resources. This reshuffling of estate resources would be to the detriment of other creditors, including administrative creditors. The fact that the AIG Lenders may consent does not make the Bonus Plan permissible under section 503(c). The statute prohibits both allowance and payment absent compliance with its detailed provisions. Based on the foregoing and the arguments below, the Emergency Motion should be denied. II. Jurisdiction, Venue & Constitutional Authority to Enter a Final Order 1. The Court has jurisdiction to consider this matter under 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2). Venue is proper in this district under 28 U.S.C. § 1408.

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2. This Court has constitutional authority to enter a final order in this matter. If it is determined that the bankruptcy judge does not have the constitutional authority to enter a final order or judgment in this matter, the U.S. Trustee consents to the entry of a final order or judgment by this Court in this matter. 3. Kevin M. Epstein is the duly appointed U.S. Trustee for Region 7. The U.S. Trustee has standing to raise, appear and be heard on any issue in a case or proceeding under the Bankruptcy Code. 11 U.S.C. § 307. 4. The U.S. Trustee has a statutory duty to monitor the administration of cases commenced under the Bankruptcy Code. 28 U.S.C. § 586(a)(3). III. Relevant Background 5. On February 10, 2021, the Debtors filed the Motion for Entry of an Order (I) Authorizing and Approving Key Employee Incentive Plan and (II) Granting Related Relief (the “Initial Motion”). See Dkt. No. 189. 6. In response to the Initial Motion, the U.S. Trustee filed the Objection to Debtors’ Motion for Entry of an Order Approving Key Employee Incentive Plan (the “Objection”). See Dkt. No. 200. 7. By Order entered on March 23, 2021, the Court approved the Key Employee Incentive Plan (the “Bonus Plan”) as it related to certain employees. The CEO and COO were not included in that approval. See Dkt. No. 248. 8. On April 9, 2021, the Debtors filed the Emergency Motion, in which they request: (a) approval of performance bonus payments of $89,600 to the CEO and $51,200 to the COO; and (b) allowance of the performance bonus payments as administrative expenses in the chapter 11 cases.

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IV. Supplemental Objection 9. The Objection is incorporated herein by reference and supplemented to include the arguments below. 10. The Debtors filed the Motion on an emergency basis yet no meaningful justification was given for emergency relief. The sale of the Debtors’ assets has not been approved. The decision to seek bonuses, particularly without meaningful changes to the incentive structure, at this critical juncture is puzzling. 11. Other than adjusted payments based upon a total payment pool of $256,000, the Emergency Motion does not contain any substantive changes to the Bonus Plan described in the Initial Motion. The Bonus Plan is a classic “pay to stay” plan that requires nothing special from the CEO and COO to receive bonus payments. There are no metrics or performance benchmarks to facilitate a “successful” sale transaction that maximizes creditor recoveries and a timely exit from chapter 11. 12. Since the parties benefitting are insiders, the Bonus Plan triggers application of section 503(c)(1). The Emergency Motion fails to address this requirement. Assuming the CEO and COO’s bonuses were subject to section 503(c)(3)’s “justified by the facts and circumstances of the case” (which they are not), no evidence supporting such an exception has been provided. Accordingly, the Emergency Motion fails under that standard as well. V. Relief Requested WHEREFORE, the U.S. Trustee requests that the Court enter an order denying the Emergency Motion, and for any and all further relief as may be equitable and just.

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Dated: April 15, 2021 Respectfully Submitted, KEVIN M. EPSTEIN UNITED STATES TRUSTEE By: /s/ Hector Duran Hector Duran State Bar No. 00783996/Fed. ID No. 15243 515 Rusk, Suite 3516 Houston, Texas 77002 (713) 718-4650 ext. 241 (202) 527-4538 (713) 718-4670 Fax CERTIFICATE OF CONFERENCE I hereby certify that on April 15, 2021, I conferred with Matthew Okin, Esq. of Okin & Adams LLP, Debtors’ counsel, about this Objection. However, the matter could not be resolved and requires court determination. /s/ Hector Duran Hector Duran, Trial Attorney CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing was served by electronic means on all PACER participants on this 15th day of April, 2021. /s/ Hector Duran Hector Duran, Trial Attorney

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