×

Relativity Bankruptcy: Justice Department Official Argues Against Bonus Pay

Employee salary bonuses proposed as part of the Relativity Media bankruptcy should be denied because they are designed to retain executives and other workers and not to encourage a more optimal sales price when the company is auctioned Oct. 1, the U.S. Trustee’s office argued in a legal filing Friday.

Serene K. Nakano, who represents the U.S. Trustee, contended that Relativity employees should not receive bonus pay for completing their normal duties or to merely keep them working for the company during bankruptcy. The U.S. Trustee is a branch of the Justice Department that is empowered to protect the integrity of the bankruptcy process.

Relativity Media, founded by entrepreneur Ryan Kavanaugh, filed for Chapter 11 protection July 30, citing nearly $1.2 billion in liabilities and about $560 million in assets. The mini-studio had proposed post-auction pay to five executives totaling nearly $315,000 to make up for previous pay cuts of $795,000. Another proposal would pay $589,000 to 80 Relativity employees, some of whom took pay cuts that totaled double that amount. That money is supposed to be paid a day after the finalization of a sale of Relativity in a bankruptcy auction.

But the U.S. Bankruptcy code requires that, during a Chapter 11 proceeding, such pay should be designed to promote an increase in the value of the bankrupt company. Nakano’s filing Friday in U.S. Bankruptcy Court in New York argued that the goal in the pay proposals was not set high enough above an existing stalking horse bid of $250 million to inspire employees to drive a more lucrative sale.

The plan “is not calculated to achieve the executives’ desired performance because the benchmarks are set too low,” Nakano’s motion contends. “In addition, [Relativity] has not shown that the [incentive] plan is consistent with industry standards.” She also argues that the Relativity board of directors has sole discretion over granting the bonuses, with no criteria for the awards spelled out.

Nakano noted in her filing that Congress had determined to “eradicate the notion that executives were entitled to bonuses simply for staying with the company through the bankruptcy process.” She also contended that bonuses in bankruptcy can’t be based solely on the debtor’s business judgment.

In addition, Nakano argued that the benchmark for the bonuses essentially may have already been met by the $250 million stalking horse bid. That is the amount offered for the bankrupt company by senior lenders Luxor Capital, Anchorage Capital and Falcon Investment Advisors. “Using these metrics, the bonuses are essentially guaranteed,” Nakano wrote, adding later in her argument that “insiders should not be paid bonuses to incentivize them to satisfy the very fiduciary duties that they are already requited to fulfill under the Bankruptcy Code.”

Companies interested in bidding for Relativity are directed to express their interest by Sept. 17, with bids due Sept. 25 and an auction to be held Oct. 1.

More Biz

  • Fourward

    Management Company Fourward Taps Christopher Burbidge as Head of Talent Division

    Will Ward’s management company Fourward has promoted long-time colleague Christopher Burbidge to head the company’s rapidly growing talent division, while also promoting Brooke Blann to manager in the company’s music division. Both Blann and Burbidge are based in the company’s Los Angeles office and will continue to report directly to Ward. Burbidge works closely on [...]

  • Writers vs Agents Packaging War WGA

    Kaplan Stahler Agency Signs Modified Code of Conduct in Win for WGA

    Kaplan Stahler has become the latest talent and literary agency to sign the Writers Guild of America’s (WGA) modified code of conduct in a win for the Guild. In a message sent out to WGA members today, the negotiating committee wrote that the agreement with Kaplan Stahler “bans packaging fees and agency-affiliated production companies and, [...]

  • London's CODA Agency Formally Becomes a

    Paradigm Agency Formally Absorbs London's CODA Into the Fold

    After five years of working together, London’s CODA Agency has formally become a part of Paradigm and will continue under its U.S. partner’s banner. The London office of what is now a fully integrated Paradigm will continue to be led by Alex Hardee, Tom Schroeder, James Whitting and Dave Hallybone. In a statement otherwise laden [...]

  • WGA Agents Dispute Placeholder

    Agencies Seek to Hold Key Court Hearing Before WGA Elections

    The four major agencies asked a court on Monday to expedite a key hearing in the Writers Guild of America lawsuit, as the agencies seek to have portions of the case thrown out before the WGA’s internal elections in September. The WGA and the unions are still waging a legal and public relations battle over [...]

  • Sonja Plack Cocaine Possession

    'The Chi' Actress Sonja Sohn Arrested on Cocaine Possession Charge

    Sonja Sohn, the actress who appears on “The Chi,” was arrested over the weekend in North Carolina on a charge of cocaine possession. Sohn, best known for portraying Det. Kima Greggs on “The Wire,” was booked and released from the Dare County Detention Center in Manteo, N.C., according to a statement from the Dare County [...]

  • Roc Nation Label Names Shari Bryant

    Roc Nation Label Names Shari Bryant and Omar Grant Co-Presidents

    Roc Nation has named Shari Bryant and Omar Grant co-presidents of the Roc Nation Label, the company announced today. The two will lead the Roc Nation team to develop strategies for signed artists while continuing to build the talent roster, according to the announcement. “There is no better way to celebrate my 20th anniversary in the [...]

  • Bert Salke and Jennifer Salke

    Feds Looked Into Amazon Studios Chief Jennifer Salke in College Admissions Scandal

    Federal investigators looked into Amazon Studios chief Jennifer Salke and her husband, Fox 21 Television Studios president Bert Salke, as they conducted a sprawling probe of cheating in elite college admissions, a source close to the case told Variety. It does not appear, however, that prosecutors will charge the Salkes in the case. The Salkes [...]

More From Our Brands

Access exclusive content