Motion to Approve Employee Retention Program (KERP) — In re KServicing (Bankr. D. Del.)

Record facts

U.S. Bankruptcy Court for the District of Delaware · No. 22-10951 · Doc. 253 · 2022-11-15 · Docket on CourtListener

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UNITED STATES BANKRUPTCY COURT 
DISTRICT OF DELAWARE 
---------------------------------------------------------- x 
 
 
: 
Chapter 11 
In re 
: 
 
 
: 
Case No. 22-10951 (CTG) 
KABBAGE, INC. d/b/a KSERVICING, et al., : 
 
 
: 
(Jointly Administered) 
 
: 
 
Debtors.1 
: 
Objection Deadline: November 29, 2022 at 4:00 p.m. (ET) 
 
 
 
: 
Hearing Date: December 7, 2022 at 10:00 a.m. (ET) 
---------------------------------------------------------- x 
 
 
  
MOTION OF DEBTORS FOR ENTRY OF ORDER  
(I) APPROVING DEBTORS’ RETENTION PROGRAM FOR CERTAIN  
NON-EXECUTIVE EMPLOYEES AND (II) GRANTING RELATED RELIEF 
Kabbage, Inc. d/b/a KServicing and its debtor affiliates, as debtors and debtors in 
possession in the above-captioned chapter 11 cases (collectively, the “Debtors” and collectively 
with their non-Debtor affiliates, the “Company”), respectfully represent as follows in support of 
this motion (the “Motion”): 
Relief Requested 
1. 
By this Motion, the Debtors request, pursuant to sections 105(a), 363(b)(1), 
and 503(c) of title 11 of the United States Code (the “Bankruptcy Code”), entry of an order 
(i) approving the Debtors’ retention program for certain non-executive employees and (ii) granting 
related relief. 
2. 
A proposed form of order granting the relief requested herein is annexed 
hereto as Exhibit A (the “Proposed Order”). 
 
1  The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification 
number, as applicable are: Kabbage, Inc. d/b/a KServicing (3937); Kabbage Canada Holdings, LLC (N/A); Kabbage 
Asset Securitization LLC (N/A); Kabbage Asset Funding 2017-A LLC (4803); Kabbage Asset Funding 2019-A 
LLC (8973); and Kabbage Diameter, LLC (N/A). Kabbage is a trademark of American Express used under license; 
Kabbage, Inc. d/b/a KServicing is not affiliated with American Express. The Debtors’ mailing and service address 
is 925B Peachtree Street NE, Suite 383, Atlanta, GA 30309. 
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3. 
In support of this Motion, the Debtors submit the declarations of 
(i) Douglas Friske, a Managing Director at Willis Towers Watson US LLC (“WTW”), attached as 
Exhibit B (the “Friske Declaration”), and (ii) Marc Sullivan, the Debtors’ Chief Financial 
Officer, attached as Exhibit C (the “Sullivan Declaration”). 
   Jurisdiction and Venue 
4. 
The Court has jurisdiction to consider this matter pursuant to 
28 U.S.C. §§ 157 and 1334, and the Amended Standing Order of Reference from the United States 
District Court for the District of Delaware, dated February 29, 2012.  This is a core proceeding 
pursuant to 28 U.S.C. § 157(b).  Pursuant to Rule 9013-1(f) of the Local Rules of Bankruptcy 
Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the 
“Local Rules”), the Debtors consent to the entry of a final order by the Court in connection with 
this Motion if it is later determined that the Court, absent consent of the parties, cannot enter final 
orders or judgments consistent with Article III of the United States Constitution.  Venue is proper 
before the Court pursuant to 28 U.S.C. §§ 1408 and 1409. 
Background 
5. 
On October 3, 2022 (the “Petition Date”), the Debtors each commenced 
with this Court a voluntary case under chapter 11 of the Bankruptcy Code (the “Chapter 11 
Cases”).  The Debtors are authorized to continue to operate their business as debtors in possession 
pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.  No trustee, examiner, or statutory 
committee of creditors has been appointed in these Chapter 11 Cases. 
6. 
Pursuant to Bankruptcy Rule 1015(b), these Chapter 11 Cases are being 
jointly administered under the above captioned case.  
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7. 
Additional information regarding the Debtors’ business, capital structure, 
and the circumstances leading to the commencement of these Chapter 11 Cases is set forth in the 
Declaration of Deborah Rieger-Paganis in Support of Debtors’ Chapter 11 Petitions and First 
Day Relief [Docket No. 13] (the “First Day Declaration”).2  
Preliminary Statement 
8. 
The Debtors’ overriding goals for these Chapter 11 Cases are to preserve 
and maximize value and effectuate a successful wind down of their business – which may include 
a transfer of loan servicing operations to an alternative servicer – with minimal disruption to 
borrowers.  The Debtors’ ability to achieve these goals depends in no small part on their ability to 
maintain a high level of business performance during the pendency of these Chapter 11 Cases, 
while also engaging with their stakeholders, and working closely with their advisors to implement 
an effective wind down, all of which requires the continued efforts, dedication, and support of 
certain of the Debtors’ non-executive, non-insider employees.  
9. 
As of the Petition Date, the Debtors commenced these Chapter 11 Cases 
with a toggle chapter 11 plan, given the Debtors’ potential settlement with Customers Bank and 
the ongoing negotiations with the Reserve Bank regarding the consensual use of cash collateral.  
Although the Debtors were hopeful that both issues would result in favorable outcomes for the 
Debtors and their estates, the ultimate conclusion remained uncertain.  Since that time, only six 
short weeks since the Petition Date, the Debtors have already made significant strides, securing a 
settlement with Customers Bank and this Court’s approval thereof, which among other things 
injects $23 million of much-needed liquidity into the estates.  Simultaneously therewith, the 
 
2  Capitalized terms used but not defined herein shall have the respective meanings ascribed to such terms in the First 
Day Declaration. 
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Debtors also successfully negotiated the consensual use of cash collateral with the Reserve Bank, 
which provides access to amounts up to $8.5 million and secures sufficient liquidity for an orderly 
administration of an approximately six-month case rather than the toggle alternative of an 
expedited 100-day scenario.  In addition, the Debtors have also successfully transitioned the 
business into chapter 11, with the least amount of disruption possible to borrowers, employees, 
vendors, and stakeholders.  Further, the Debtors have obtained “first day” and “second day” relief 
necessary to stabilize their business and preserve ongoing operations, which are critical to 
preserving value for all stakeholders.   
10. 
Yet, notwithstanding the progress made to date, much work remains to be 
done.  Among other things, the Debtors must now: (a) coordinate with key stakeholders on the 
administration of these Chapter 11 Cases, (b) negotiate the terms of the chapter 11 plan and related 
disclosure statement, (c) identify potential third party servicers to prepare for, and reasonably assist 
in, the transfer of loan portfolios, as applicable, and (d) prepare for an orderly wind down. 
11. 
Recognizing that the continued success of these Chapter 11 Cases depends 
on the continued dedication of the Debtors’ limited number of employees who must perform these 
remaining tasks – many of which are outside the ordinary scope of their duties – the Debtors seek 
authority to continue their prepetition key employee retention plan (the “KERP”) to pay awards 
to only eleven (11) critical, non-insider, non-executive employees (collectively, the “Non-
Executive KERP Participants”).   The Non-Executive KERP Participants must not only manage 
their respective day-to-day duties and additional burdens and requirements of operating in chapter 
11, but must also prepare for a potential transfer of operations and eventual wind down, all within 
a short window of time.  Essentially, the Non-Executive KERP Participants are being asked to 
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work themselves out of a job – if they are successful with the tasks at hand, eventually the Debtors 
will not exist.   
12. 
To that end, the Debtors respectfully submit that the narrowly tailored Non-
Executive KERP, with input from WTW, the Debtors’ independent compensation consultant, was 
thoughtfully designed to increase the likelihood that the Non-Executive KERP Participants remain 
in the Debtors’ employ, thereby preserving value for the Debtors, their estates, their creditors, and 
other parties in interest.  After carefully evaluating the need for a retention plan, with input from 
the Debtors’ management team as to personnel and business needs, the Debtors calculated the 
proposed amounts to be paid, and WTW evaluated their reasonableness, including scope and cost, 
by comparing the Non-Executive KERP to retention plans implemented in chapter 11 cases of 
similarly situated companies to ensure the Non-Executive KERP was consistent with market 
practices.   
13. 
For the avoidance of doubt, with this Motion, the Debtors seek 
authorization, but not direction, to continue to honor obligations under the KERP with respect to 
only the Non-Executive KERP Participants.  At a high level: 
 The Non-Executive KERP includes eleven (11) Non-Executive KERP 
Participants. 
 
 Each Non-Executive KERP Participant is eligible to earn an award in four 
equal installments.  One installment was paid prepetition; three installments 
remain and will be paid post-petition in accordance with the requirements 
under the Non-Executive KERP.  
 
 The aggregate remaining awards available to the Non-Executive KERP 
Participants total approximately $247,400, which includes $9,000 from the 
Discretionary Pool (as defined and further described in detail below) that 
has been allocated to two (2) Non-Executive KERP Participants and 
$63,000 from the Discretionary Pool that has yet to be allocated.   
 
 To ensure the Debtors have sufficient personnel on hand to meet all of their 
chapter 11 goals, the Non-Executive KERP Participants’ right to an award 
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under the Non-Executive KERP is conditioned on their continued 
employment with the Debtors.    
14. 
As demonstrated below, the Non-Executive KERP is appropriate, 
reasonable, well within the Debtors’ business judgment, and, most importantly, is essential to 
preserving and maximizing value for the benefit of the Debtors’ economic stakeholders.  The Non-
Executive KERP Participants have knowledge of the Debtors’ business operations and are vital to 
these Chapter 11 Cases.  It would be difficult and costly, if not impossible, to replace the Non-
Executive KERP Participants at this juncture.  In particular, as a company in wind down, the 
Debtors already face difficulties recruiting, hiring, and maintaining employees.  Under these 
circumstances, providing the narrowly tailored, modest KERP to the limited pool of Non-
Executive KERP Participants is critical and in the best interests of all stakeholders.  Accordingly, 
the Debtors respectfully request that the Court approve the Non-Executive KERP (as defined 
below). 
Key Employee Retention Program 
A. 
Development of the Prepetition KERP 
15. 
Prior to the commencement of these Chapter 11 Cases, the Debtors 
maintained a prepetition employee bonus program (the “Employee Bonus Program”) in the 
ordinary course of business.  As part of the Employee Bonus Program, employees were eligible to 
receive (i) annual discretionary bonuses based on performance, and (ii) referral bonuses upon 
referring someone who was hired into a full-time position.3  The Employee Bonus Program was 
an essential component of the Debtors’ employees’ aggregate compensation and was important in 
providing market-based compensation.  The Employee Bonus Program encouraged retention 
 
3  For further details see Motion of Debtors for Entry of Interim and Final Orders (I) Authorizing Debtors to (A) Pay 
Prepetition Wages, Salaries, Employee Benefits, and Other Compensation and (B) Maintain Employee Benefit 
Programs and Pay Related Obligations and (II) Granting Related Relief [Docket No. 10]. 
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among the Debtors’ employees, which minimized costs associated with attrition and also ensured 
for continuity in the Debtors’ business operations.  Sullivan Decl. ¶ 5.  
16. 
In the summer of 2022, with the goal of retaining certain key employees 
during the Debtors’ wind down process, the Debtors’ management, in consultation with 
AlixPartners, WTW, and Weil, undertook a review of their existing compensation programs to 
evaluate whether they were meeting their objectives of maintaining employee focus and retention.  
In particular, the Debtors were focused on (i) ensuring that their interests and the interests of their 
key employees were aligned to maximize value, (ii) preventing the loss of key employees during 
the wind down process, including to competitors, and (iii) accounting for the potential loss or delay 
of any bonus payments in the event of a potential chapter 11 filing.  Sullivan Decl. ¶ 6.  The 
Debtors’ management, in consultation with AlixPartners, WTW, and Weil, therefore developed a 
proposed framework for the KERP which took into account, among other things, the Debtors’ 
existing situation, market practices utilized in similar situations, and views of the Debtors’ 
management concerning employee morale, expectations, and attrition risk.  Id. 
17. 
WTW’s analysis of the KERP was all inclusive and reviewed the proposed 
terms and conditions relating to all aspects of the KERP, including the method of approval, scope 
of participants, total award pool, timing of proposed payments, retention periods and requirements, 
and related clawback provisions.  The Debtors’ advisors also evaluated the KERP and advised the 
Debtors on legal, business, and practical considerations to take into account with respect to 
adoption of the KERP.  Ultimately, Weil, AlixPartners, and WTW recommended that the Debtors’ 
Board of Directors (the “Board”) review, consider, and approve the KERP.  Friske Decl. ¶ 7.   
18. 
The Board, following the advice of its advisors, effectively replaced the 
Employee Bonus Program with the KERP for fifteen (15) of the Debtors’ critical, full-time 
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employees: four (4) executives (the “Executive KERP Participants,” together with the Non-
Executive KERP Participants, the “KERP Participants”), and eleven (11) Non-Executive KERP 
Participants.  Put differently, for any KERP Participant that signed a KERP agreement, such 
employee agreed to waive any awards attributable to the 2022 calendar year under the Employee 
Bonus Program.  Sullivan Decl. ¶ 6. 
B. 
Description of the Prepetition KERP 
19. 
The KERP contemplates an aggregate maximum payout of approximately 
$836,300 to 15 total employees: approximately $527,300 on account of Executive KERP 
Participants and approximately $309,000 on account of the Non-Executive KERP Participants, 
which includes a $75,000 Discretionary Pool, as explained further below.  Of the approximately 
$836,300, a total of approximately $589,000 was paid prepetition: with approximately $527,300 
on account of executives, and approximately $61,500 on account of the first quarterly installment 
for the Non-Executive KERP Participants, which includes $3,000 from the Discretionary Pool.  
20. 
A summary table of the KERP is set forth below: 
 
 
4 This figure includes three (3) remaining installments in the amount of approximately $61,500 each and the amount 
remaining for allocation from the Discretionary Pool (i.e., $63,000).  
KERP 
 
Executive 
Non-Executive 
Total Number of Participants  
4  
11  
Aggregate Maximum Amount 
$527,300* 
$309,000* 
Amount Left to be Paid Out 
$0 
$247,400*4 
Discretionary Pool 
N/A 
$75,000, of which, as of the 
Petition Date, $72,000 has 
yet to be paid and   
$63,000 remains available 
for allocation 
*The asterisk denotes an approximate figure. 
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i. 
Executive KERP 
21. 
At a high level, the prepetition executive KERP contemplated awards to 
four (4) key executive employees (the “Executive KERP”).  Prepetition, the Executive KERP 
Participants received prepetition awards under the KERP, totaling approximately $527,300.  To 
ensure the Executive KERP Participants remain in the Debtors’ employ through these Chapter 11 
Cases and wind down of the business, the Executive KERP requires the Executive KERP 
Participants to continue working for the Debtors through the applicable retention period.   
22. 
For the avoidance of doubt, the Debtors are not seeking any relief with 
respect to the Executive KERP.  
ii. 
Non-Executive KERP 
23. 
The non-executive KERP (the “Non-Executive KERP”) is broken into 
three (3) tiers, divided by employment levels, with award amounts based on a percentage of base 
salary:  
Non-Executive 
KERP Tier 
Award Amount as 
a % of Base 
Salary 
Number of 
Participants 
Approximate 
Aggregate Award 
Amount by Tier 
Tier 1 
30%  
2 
104,000 
Tier 2 
20% 
3 
79,000 
Tier 3 
< 15% 
6 
63,000 
Total  
246,0005 
 
a. 
Non-Executive KERP Participants: eleven (11) Non-Executive 
KERP Participants 
 
b. 
Non-Executive KERP Awards: the maximum total cost of the Non-
Executive KERP is approximately $309,000 (including the 
Discretionary Pool), with individual amounts ranging from 8% to 
30% of each Non-Executive KERP Participant’s annual salary.  Of 
 
5 This figure includes all four (4) installments of the Non-Executive KERP, including the installment that was paid 
prior to the Petition Date, but does not include the remaining $63,000 that has yet to be allocated from the 
Discretionary Pool. 
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the approximate $309,000 total award pool, approximately $61,500 
was paid on a prepetition basis as the first quarterly payment.  
Quarterly payments earned and paid are not subject to clawback; 
however, if any of the Non-Executive KERP Participants are 
terminated for any reason they will not be entitled to any future, 
remaining payments. 
 
c. 
Award Timing: the Non-Executive KERP provides for awards 
available in four quarterly payments (the first of which was paid 
prepetition).  The three remaining installments are to be paid on or 
as soon as administratively practicable following each of: December 
31, 2022, March 31, 2023, and June 30, 2023, subject to continued 
employment with the Company. 
 
d. 
Acceleration: remaining installments are subject to acceleration in 
the event of a “change of control.”6   
 
e. 
Effect on Severance and Other Compensation: to receive a Non-
Executive KERP award, each Non-Executive KERP Participant has 
agreed that the award is in lieu of any bonus compensation or award 
attributable to the 2022 calendar year or any severance pay or 
benefits at any time.   
 
f. 
Discretionary Pool: available for non-executive, non-insider 
employees who are critical but were not included in the original 
Non-Executive KERP Participant list.  
 
24. 
To account for special circumstances, the Non-Executive KERP also 
provides for an additional discretionary pool of $75,000 (the “Discretionary Pool”).  From the 
Discretionary Pool, $12,000 was allocated prepetition on account of two (2) Non-Executive KERP 
Participants (of which $3,000 was paid to such participants), and $63,000 of the Discretionary 
Pool remains unallocated.  With regard to future payments from the Discretionary Pool, the 
Debtors’ Chief Executive Officer will determine which, if any, non-executive employees should 
 
6 “Change of Control” means (i) the sale, disposition, or transfer in one or a series of related transactions, of all or 
substantially all of the servicing obligations of the Company to any person; (ii) a transaction or series of related 
transactions in which any person (including an existing stockholder of the Company) acquires, directly or indirectly, 
more than 50% of the total voting power of the voting equity of the Company, including by way of merger, 
consolidation or otherwise; (iii) the consummation of a confirmed chapter 11 plan of the Company; (iv) entry of an 
order of conversion by a court of competent jurisdiction or (v) dismissal of the chapter 11 cases. 
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receive awards from the KERP Discretionary Pool, as well as the appropriate amounts of such 
awards.  Participants in the Discretionary Pool are not allowed more than one award and no single 
award may exceed $18,750.   
B. 
Post-Petition Continuation of the Non-Executive KERP 
25. 
The Debtors seek relief, only with respect to the Non-Executive KERP, for 
authorization but not direction to make any remaining payments pursuant to the Non-Executive 
KERP, including paying awards from the remaining Discretionary Pool.   
26. 
The Non-Executive KERP Participants play important roles in the Debtors’ 
wind down efforts, each performing crucial tasks within the Debtors’ various departments. The 
Non-Executive KERP Participants each possess unique knowledge of the Debtors’ business 
operations that they have developed over the course of their employment, which cannot be easily 
replaced or replicated.  Sullivan Decl. ¶ 13.  Additionally, many of the Non-Executive KERP 
Participants have seen their workloads expand significantly as a result of these Chapter 11 Cases 
as, among other things, the Debtors have sought to address the ongoing concerns of various 
governmental agencies and regulators while servicing their underlying loan portfolios and 
planning for the wind down of their business.  Id.  As a financial services company, the Debtors’ 
successful operations and completion of these Chapter 11 Cases depends on the efforts of the Non-
Executive KERP Participants at this critical stage. 
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C. 
Non-Insider Status of the Non-Executive KERP Participants  
27. 
None of the Non-Executive KERP Participants are an insider as that term is 
defined in section 101(31) of the Bankruptcy Code.7  The titles of the Non-Executive KERP 
Participants are as follows:  
 Corporate Controller,  
 Manager, Legal Operations,  
 Program Management Lead - Borrower Support,  
 Senior Program Management Lead,  
 Collections Manager,  
 Program Management Lead,  
 Associate Program Management Lead,8 
 Financial Operations Supervisor  
 
28. 
The duties and responsibilities of these positions are limited to their specific 
departments and individual roles.  As further described in the Sullivan Declaration, the Non-
Executive KERP Participants do not participate in the decisions of the Debtors’ management team 
or the Board, do not attend management meetings, and do not have any meaningful control over 
company policy or substantial budgetary amounts.  None of the Non-Executive KERP Participants 
were appointed by the Board, report directly to the Board, or attend any Board meetings.  Most 
importantly, none of the Non-Executive KERP Participants had any input on any aspect or 
provision of the KERP.  Sullivan Decl. ¶ 9.  
D. 
Market Analysis of the Non-Executive KERP 
29. 
In order to ensure that the KERP is market-based, competitive, and 
reasonable, the Company engaged WTW, an independent compensation consultant.  WTW was 
engaged to, among other things, provide relevant market data and advise on compensation design 
 
7  The Bankruptcy Code defines “insider” as a “(i) director of the debtor; (ii) officer of the debtor; (iii) person in 
control of the debtor; . . . ([iv]) general partner of the debtor; or ([v]) relative of a general partner, director, officer, 
or person in control of the debtor.” 11 U.S.C. § 101(31)(B).     
8  Four (4) Non-KERP Participants have the title “Associate Program Management Lead.” 
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considerations.  Friske Decl. ¶ 2.  With respect to the Non-Executive KERP, WTW summarized 
common non-executive key employee retention programs across thirty (30) companies with 
revenues between $0 – $100 million or assets between $400 million – $1 billion that implemented 
non-executive key retention programs in the past five years.  Friske Decl. ¶ 8.  Based on these 
findings, WTW worked with management and the Company’s advisors to formulate a strawmodel 
design for the KERP.  Id.   
30. 
The strawmodel design included recommendations on the scope of 
participation in the Non-Executive KERP, award amount, form of payment, payment timing, and 
treatment upon termination.  Friske Decl. ¶ 9.  WTW then compared this strawmodel to various 
other restructuring compensation programs and found that the Debtors’ proposed aggregate cost 
for the Non-Executive KERP Participants was below the 25th percentile of the market when 
expressed as a percentage of the Debtors’ assets.  Id.  WTW further concluded that (i) the number 
of the Debtors’ Non-Executive KERP Participants was at the lower end of the range of common 
market practice, (ii) the average award per Non-Executive KERP Participant was consistent with 
median market practice, (iii) the Debtors’ proposed form of cash payment was consistent with 
market standards, (iv) the proposed quarterly payments of equal installments was common 
practice, and (v) the retention requirements for each Non-Executive KERP Participant to receive 
their respective payment was in line with the market.  Friske Decl. ¶ 13.   
31. 
Additionally, with respect to the Discretionary Pool, WTW reviewed its 
proposed terms and concluded that the total combined cost of the Non-Executive KERP and 
Discretionary Pool would still be below the 25th percentile of retention programs adopted by 
companies with the ranges of assets and revenues as set forth above.  Friske Decl. ¶ 10.   Further, 
the Discretionary Pool is reasonable and appropriate given the circumstances; the Debtors are 
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cognizant of the uncertainty of these cases and do not know if certain individuals not currently 
included in the Non-Executive KERP may become necessary or vital to the Debtors’ ultimate 
goals. 
32. 
In short, as further described in the Friske Declaration, the average award 
to each Non-Executive KERP Participant falls below median market comparables, and its overall 
cost is reasonable when compared to the aggregate costs of key employee retention programs 
approved in similarly sized chapter 11 cases.  Friske Decl. ¶ 19.  The proposed payments to the 
Non-Executive KERP Participants were developed in conjunction with management, 
AlixPartners, Weil, and WTW and, as set forth in the Friske Declaration, reflect WTW’s review 
of retention-based compensation programs approved in other chapter 11 cases.  The Debtors 
respectfully submit that the awards contemplated by the Non-Executive KERP are reasonable, 
market-based, and justified under the circumstances of these Chapter 11 Cases.              
Relief Requested Should Be Granted 
33. 
The Debtors submit that the relief requested herein should be granted 
because (i) the implementation of the Non-Executive KERP reflects a reasonable exercise of the 
Debtors’ business judgment and, therefore, is appropriate under section 363(b)(1) of the 
Bankruptcy Code, (ii) the Non-Executive KERP satisfies section 503(c) of the Bankruptcy Code 
because the KERP does not provide for payments to “insiders” as that term is used in section 
101(31) of the Bankruptcy Code, and (iii) the Non-Executive KERP is justified by the facts and 
circumstances of these Chapter 11 Cases. 
A. 
The Implementation of the Non-Executive KERP is an Exercise of the 
Debtors’ Sound Business Judgment 
34. 
The Non-Executive KERP constitutes a sound exercise of the Debtors’ 
business judgment and should be approved under section 363(b)(1) of the Bankruptcy Code.  
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Section 363 of the Bankruptcy Code provides, in relevant part, that “[t]he [debtor], after notice 
and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the 
estate.” 11 U.S.C. § 363(b)(1).  Under section 363(b), courts require only that a debtor “show that 
a sound business purpose justifies such actions.” Dai-Ichi Kangyo Bank, Ltd. v. Montgomery Ward 
Holding Corp; (In re Montgomery Ward Holding Corp.), 242 B.R. 147, 153 (D. Del. 1999) 
(citations omitted) “Compensation issues are normally governed by the business judgment 
standard, i.e., proof that there is a broad business purpose for an action.” In re Glob. Home Prods., 
LLC, 369 B.R. 778, 783–84 (Bankr. D. Del. 2007) (citing Nyers v. Martin (In re Martin), 91 F.3d 
389, 395 (3d Cir. 1996)).  Moreover, “[w]here the debtor articulates a reasonable basis for its 
business decisions (as distinct from a decision made arbitrarily or capriciously), courts will 
generally not entertain objections to the debtor’s conduct.” Comm. of Asbestos-Related Litigants 
v. Johns-Manville Corp. (In re Johns-Manville Corp.), 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986) 
(citation omitted). 
35. 
The Debtors, in consultation with their advisors, took a measured approach 
when developing the Non-Executive KERP and selecting the modest number of Non-Executive 
KERP Participants.  Sullivan Decl. ¶ 7.  The Debtors believe the program is appropriately designed 
and narrowly tailored to retain the Non-Executive KERP Participants, boost employee morale in 
light of the uncertainty created by these Chapter 11 Cases, and mitigate the risk of employee 
attrition at this crucial juncture.  Employee retention is even more important in light of the fact that 
the Debtors are currently winding down their business.  At this stage in the wind down process, it 
would not be practical (if even possible) for the Debtors to attempt to recruit new personnel and 
would require expending significant time and resources.  Sullivan Decl. ¶ 11.  Particularly given 
that the Non-Executive KERP Participants duties have expanded and now require additional 
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responsibilities coupled with greater time commitment, the Debtors maintain that the Non-
Executive KERP is appropriate, justified, and critical to the success of their wind down efforts.    
36. 
The Non-Executive KERP was also carefully designed through an approach 
that balanced the Debtors’ goals with respect to performance and retention while adhering to 
market standards.  Sullivan Decl. ¶ 12.  Further, the Debtors maintain that the payment levels under 
the Non-Executive KERP (including the Discretionary Pool) are reasonable and were determined 
based on an independent analysis performed by WTW.  Id.  According to the Debtors and their 
advisors, the overall cost of the Non-Executive KERP is consistent with similar programs 
implemented by market peers, and is reasonable in light of the size of the Debtors’ estates and the 
benefit to be gained from a successful wind down.  Id.   
37. 
For the foregoing reasons, the Debtors submit that implementation of the 
Non-Executive KERP reflects a sound exercise of their business judgment. 
B. 
Sections 503(c)(1) and 503(c)(2) Do Not Apply to the Non-Executive KERP 
Because the Non-Executive KERP Does Not Provide for Payments to Insiders  
38. 
Sections 503(c)(1) and 503(c)(2) of the Bankruptcy Code impose material 
limitations on retention and severance plans that are implemented for the benefit of “insiders.”  
The Bankruptcy Code defines “insider” as a “(i) director of the debtor; (ii) officer of the debtor; 
(iii) person in control of the debtor; . . . ([iv]) general partner of the debtor; or ([v]) relative of a 
general partner, director, officer, or person in control of the debtor.” 11 U.S.C. § 101(31)(B).  
While a person holding an officer’s title is presumptively an “officer” and, thus, an “insider,” that 
presumption may be rebutted with “evidence sufficient to establish that the person holds the title 
of an officer in name only and, in fact, does not meet the substantive definition of the same, i.e., 
he or she is not taking part in the management of the debtor.”  In re Foothills Texas, Inc., 408 B.R. 
573, 574–75 (Bankr. D. Del. 2009). 
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39. 
Here, none of the Non-Executive KERP Participants are “insiders” within 
the meaning of the Bankruptcy Code.  None of the Non-Executive KERP Participants participate 
in the Debtors’ strategic management or direction, and many of their duties are limited to tasks 
within particular divisions or departments.  Sullivan Decl. ¶ 9.  The Non-Executive KERP 
Participants generally do not attend senior management meetings and do not participate in 
meetings of the Board.  Additionally, none of the Non-Executive KERP Participants has 
discretionary control over any substantial budgetary amounts or the ability to dictate company 
policy.  Moreover, none of the KERP Participants were appointed by the Board, are a member of 
the Board, or had any say or input on any aspect of the KERP.  Id.  
40. 
As a consequence, the Non-Executive KERP Participants are not “insiders” 
as defined in the Bankruptcy Code, and, accordingly, the Debtors maintain that sections 503(c)(1) 
and 503(c)(2) do not apply to the Non-Executive KERP.9 
C.  
The Non-Executive KERP is Justified by the Facts and Circumstances of 
these Chapter 11 Cases 
41. 
Section 503(c)(3) of the Bankruptcy Code permits payments to a debtor’s 
employees outside the ordinary course of business if such payments are justified by “the facts and 
circumstances of the case.”  11 U.S.C. § 503(c)(3).  Courts consider several factors in determining 
whether a particular program is justified under the facts and circumstances of a particular case, 
including: (i) whether the plan is calculated to achieve the desired performance; (ii) whether the 
cost of the plan is reasonable in the context of a debtor’s assets and liabilities; (iii) whether the 
scope of the plan is fair and reasonable or discriminates unfairly among employees; (iv) whether 
 
9  Section 503(c)(2) is inapplicable because it applies only to severance payments.  The Debtors’ proposed Non-
Executive KERP is not a severance plan because, among other things, the compensation to be awarded thereunder 
is not triggered by, or otherwise dependent upon, the termination of the Non-Executive KERP Participants’ 
employment. 
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the plan is consistent with industry standards; (v) whether the debtor performed due diligence in 
investigating the need for the plan; and (vi) whether the debtor received independent advice in 
performing due diligence with respect to creating and authorizing the plan.  See Glob. Home 
Prods., 369 B.R. at 786; Dana Corp., 358 B.R. 576–77 (Bankr. S.D.N.Y. 2006).  No single factor 
is dispositive, and the Court has discretion to weigh each of these factors based on the specific 
facts and circumstances before it.  See Dana Corp., 358 B.R. at 576. 
42. 
First, as set forth above and in the Sullivan Declaration, the Debtors and 
their advisors designed the Non-Executive KERP to retain and reward the Non-Executive KERP 
Participants for their significant efforts given the increased demands placed upon them in 
connection with the chapter 11 process, and to avoid the loss of key personnel.  Sullivan Decl. ¶ 
11.  To receive and retain any award under the Non-Executive KERP, the Non-Executive KERP 
Participants must remain in the Debtors’ employ through the applicable quarter, which will ensure 
that the Debtors have the appropriate staff on hand to continue their operations, maximize value 
for their estates, and eventually wind down their loan servicing business.  Failure to retain the Non-
Executive KERP Participants would surely cause the Debtors’ financial and operational 
performance during the Chapter 11 Cases to suffer.  Further, it would cause the Debtors to incur 
significant time and expense to hire and train replacement employees.  Sullivan Decl. ¶ 12. 
43. 
Second, the cost of the Non-Executive KERP is reasonable in light of the 
Debtors’ assets and liabilities.  As stated previously and more thoroughly in the Friske Declaration, 
WTW engaged in an extensive analysis to assist the Debtors with the design of the Non-Executive 
KERP and concluded that the costs associated with the Non-Executive KERP are within the range 
of other chapter 11 cases with debtors of a similar size.  Friske Decl. ¶ 6.  WTW engaged in an 
extensive analysis to assist the Debtors with the design of the Non-Executive KERP and concluded 
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19 
 
that the associated costs were within the range of these programs.  Additionally, WTW determined 
that the terms of the Non-Executive KERP are reasonable and consistent with the terms approved 
in those other programs, with respect to, eligibility, form of payment, total cost, and payout 
frequency and timing.  Friske Decl. ¶ 9.  The implementation of the Non-Executive KERP 
addresses the reality that the competition for talent continues and the hardships of a company in 
wind down to retain and attract employees.  
44. 
Third, the scope of the Non-Executive KERP is fair and reasonable.  The 
Debtors, with the assistance of their advisors, undertook a careful selection process to determine 
the specific employees who should be eligible for the Non-Executive KERP.  Sullivan Decl. ¶ 7. 
The Non-Executive KERP Participants, who work across a wide variety of disciplines, were 
chosen because they are essential to the Debtors’ operations and to the successful wind down of 
their business.  Id.  The inclusion of the Discretionary Pool provides the Debtors the ability to 
disburse awards to certain non-senior-management employees who are important to the Debtors’ 
restructuring efforts, but who initially were not identified as Non-Executive KERP Participants, 
thereby eliminating any concerns that the Debtors have erred in their initial selection of the Non-
Executive KERP Participants.  Friske Decl. ¶ 4. 
45. 
Accordingly, the Debtors respectfully submit that the Non-Executive KERP 
satisfies section 503(c)(3) of the Bankruptcy Code and should be approved.  
Bankruptcy Rules 6004(a) and (h) 
46. 
To implement the foregoing successfully, the Debtors request that the Court 
find that notice of the Motion is adequate under Bankruptcy Rule 6004(a), and waive the fourteen 
(14) day stay of an order authorizing the use, sale, or lease of property under Bankruptcy Rule 
6004(h).  As set forth herein, ample cause exists to justify finding that the notice requirements 
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20 
 
under Bankruptcy Rule 6004(a) have been satisfied and to grant a waiver of the fourteen (14) day 
stay imposed by Bankruptcy Rule 6004(h), to the extent such notice requirements and such stay 
apply. 
Notice 
47.  
Notice of this Motion will be provided to (a) the Office of the United States 
Trustee for the District of Delaware; (b) the holders of the thirty (30) largest unsecured claims 
against the Debtors on a consolidated basis; (c) the Federal Reserve Bank; (d) Customers Bank; 
(e) Cross River Bank; (f) the United States Department of Justice; (g) the Federal Trade 
Commission; (h) the Small Business Administration; (i) the Internal Revenue Service; (j) the 
Securities and Exchange Commission; (k) the United States Attorney’s Office for the District of 
Delaware; and (l) any party that has requested notice pursuant to Bankruptcy Rule 2002 
(collectively, the “Notice Parties”).  The Debtors believe that no further notice is required. 
No Prior Request 
48. 
No previous request for the relief sought herein has been made by the 
Debtors to this or any other court. 
 
[Remainder of Page Intentionally Left Blank] 
 
 
 
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21 
 
WHEREFORE the Debtors respectfully request entry of the Proposed Order 
granting the relief requested herein and such other and further relief as the Court may deem just 
and appropriate. 
Dated: 
November 15, 2022 
Wilmington, Delaware 
 
 
 
 
/s/ Matthew P. Milana 
RICHARDS, LAYTON & FINGER, P.A. 
Daniel J. DeFranceschi, Esq. (No. 2732) 
Amanda R. Steele (No. 5530) 
Zachary I. Shapiro (No. 5103) 
Matthew P. Milana (No. 6681) 
One Rodney Square 
920 North King Street 
Wilmington, Delaware 19801 
Telephone: (302) 651-7700 
E-mail: defranceschi@rlf.com 
             steele@rlf.com 
             shapiro@rlf.com 
             milana@rlf.com 
 
-and- 
 
WEIL, GOTSHAL & MANGES LLP 
Ray C. Schrock, P.C. (admitted pro hac vice) 
Candace M. Arthur (admitted pro hac vice) 
Natasha S. Hwangpo (admitted pro hac vice) 
Chase A. Bentley (admitted pro hac vice) 
767 Fifth Avenue 
New York, New York 10153 
Telephone:  
(212) 310-8000 
E-mail:  
ray.schrock@weil.com 
                        candace.arthur@weil.com 
 
 
natasha.hwangpo@weil.com 
                        chase.bentley@weil.com  
 
Attorneys for Debtors and Debtors in 
Possession 
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