Below are some notable news posts for the week ended 12/2/05 on the following topical bankruptcy issues of interest to the bankruptcy litigator and practitioner:
Calpine News
Delphi’s Bankruptcy
Delta Bankruptcy
Subprime Mortgages
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Continue Reading Weekly News Roundup on Bankruptcy-Related Topics for the Week Ended 12/2/05

Delphi announced today that the motion to approve the executive compensation program (discussed in yesterday’s post) “is being adjourned to January 5, 2006 pursuant to an agreement between the Debtors and the Creditors’ Committee.” No big surprise here given the opposition aligned against the motion, including an objection filed today by the US Trustee.
Here you’ll find a 20 page agenda identifying all 32 matters set for hearing on November 29, 2005. Of these 32 matters: 17 are continued or adjourned, 6 are uncontested, agreed, or settled; 8 are contested non-evidentiary matters; and 1 is a contested evidentiary matter.
This last one, a motion for entry of a proposed order approving procedures to assume certain amended and restated sole source supplier agreements, is an interesting one. In it, Delphi seeks authority to assume agreements covering the supply of goods that Delphi determines–

are absolutely critical to their on-going business operations; in other words, those goods that are not readily available from another supplier in quantities sufficient to avoid an interruption in the Debtors’ manufacturing operations and the Debtors’ supply of products to their customers (generally sole sourced Goods) and without which the Debtors would face an imminent shutdown of business operations at one or more of the Debtors’ business locations that would affect the operations of the Debtors’ customers.

This motion drew scores of objections from affected suppliers left out of the deal, as well as from the Creditors’ Committee. In support of the motion, Delphi filed supporting declarations from John Sheehan, Randy Eisenberg, and David Nelson. The DIP lenders filed a statement in support, though it was hardly a ringing endorsement of the proposal.
In the preliminary statement to its objection, the Creditors’ Committee summed up its concerns as follows:

Continue Reading Facing Stiff Opposition, Delphi Reschedules Hearing on Controversial “Key Executive Compensation Plan” to January 5, 2006

We’ve heard a lot in the news about the fight between management and labor in the Delphi case. What gets in front of the Bankruptcy Court, however, is evidence and legal argument, not newspaper stories and press releases.
With a hearing before the Bankruptcy Court on Delphi’s Motion to approve its “Key Employee Compensation Program” set for November 29, I thought readers of this blog would appreciate having the opportunity to see exactly what the parties are telling the Court in their filed pleadings.
Click the links to find Delphi’s motion in support, the accompanying Watson Wyatt report, and the objections filed by the UAW, the PBGC, JPMorgan Chase (a “limited objection” as agent for 250 senior secured lenders), Wilmington Trust (as indenture trustee), and the Lead Plaintiffs (in the pending shareholder class action).
Bottom line, the proof is in the pudding, and it’s hard to see the debtor winning on the measly submissions it has before the Court right now. The UAW appears to have the better side of the law in arguing that the Court should scrutinize the insider compensation plan under the “inherent fairness” standard, not the deferential “business judgment” standard advocated by Delphi’s counsel. The UAW also rightly points out that:

Under [BAPCPA’s new amendments to the Bankruptcy Code], a retention-type obligation incurred for the benefit of an insider “shall neither be allowed nor paid” absent findings by the court, based upon evidence in the record, that the individual has a job offer at the same or greater rate of compensation, that the services provided by the individual are “essential to the survival of the business” and that the payments meet a strict monetary test.

Although BAPCPA’s amendments technically don’t apply because Delphi filed before these amendments became effective, it’s still a solid argument as they probably represent the proof that a litigator generally would want to introduce anyway under the “inherent fairness” standard governing insider transactions.
Still, while it’s common for parties to reach agreement on the eve of trial, it’s difficult imagining the unions caving on this one and agreeing to anything. Instead, I suspect, the unions will make the Court cram this one down their throats if the Court really wants management to benefit here (though this too seems unlikely given the weak generalized evidence presently before the Court and the equally shaky legal grounds upon which Delphi relies).
In the end, nothing is guaranteed for the workers being asked to sacrifice and stay, so why should anything be guaranteed to the 500 management employees who are being asked to do the same (other than the fact that they control the debtor’s lawyers who are instructed to file these kinds of motions)? But maybe expecting that management will refrain from self-dealing while asking for workers to take severe pay cuts is asking too much of some people.
Stay tuned.
© Steve Jakubowski 2005