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Keywords

hearingtestimonytrustwillbankruptcychapter 11 bankruptcyobjection
statutetrustbankruptcy

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GT Advanced Technologies Inc. v. Harrington, Not Reported in F.Supp.3d, 2015 WL 4459502, 2015 DNH 144

Facts

GTAT, a technology company that produced sapphire glass, filed for Chapter 11 bankruptcy due to a cash liquidity crisis, having lost over $300 million and laid off 820 employees shortly after filing. GTAT proposed a KEIP for nine senior management employees and a KERP for 26 non-insider employees, both designed to incentivize retention and performance during the bankruptcy process. The bankruptcy court held a hearing on these plans, during which it received testimony and objections, ultimately denying both plans based on statutory requirements and the court's assessment of their effectiveness.

GTAT is a technology company that once produced sapphire glass. As a result of a cash liquidity crisis arising from its sapphire glass manufacturing operation, GTAT petitioned for protection under Chapter 11 of the Bankruptcy Code.

Issue

Did the bankruptcy court err in denying GTAT's KEIP and KERP by applying the wrong legal standards and failing to properly analyze the plans?

The bankruptcy court determined that the KEIP was subject to 11 U.S.C. § 503(c)(1) because it was a retention plan disguised as an incentive plan.

Rule

The court applied 11 U.S.C. § 503(c), which governs the allowance of administrative expenses, particularly focusing on the distinction between retention plans for insiders and incentive plans.

The point of disagreement concerns which provision of § 503 applies.

Analysis

The bankruptcy court determined that the KEIP was a retention plan disguised as an incentive plan, thus subject to the stricter requirements of § 503(c)(1). The court found that the KEIP did not meet the necessary criteria for approval, as it failed to demonstrate that the proposed targets were sufficiently rigorous to qualify as an incentive plan. Similarly, the KERP was deemed to fall below the business judgment standard, lacking adequate justification under the relevant legal framework.

The bankruptcy court determined that the KEIP was subject to 11 U.S.C. § 503(c)(1) because it was a retention plan disguised as an incentive plan.

Conclusion

The appellate court concluded that the bankruptcy court's failure to properly analyze the KEIP and KERP constituted an error of law, necessitating a remand for further proceedings to evaluate the plans under the correct standards.

Accordingly, I find [and] I rule … that while the KEIP simply doesn't satisfy the statute because it is [a] disguised retention program [and] the KERP falls below the business judgment standard.

Who won?

William Harrington, United States Trustee, prevailed as the bankruptcy court's denial of GTAT's plans was upheld, indicating that the plans did not meet the statutory requirements.

The Trustee has the better argument.

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