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Critical Differences Between Key Employee Retention Plans And Key Employee Incentive Plans, Sumaya Ullah Restagno

Bankruptcy Research Library

(Excerpt)

Section 503(c) of the United States Bankruptcy Code (the “Bankruptcy Code”) imposes strict limitations on companies in chapter 11 who want to make bonus payments to retain employees. In particular, section 503(c) limits a chapter 11 debtor’s ability to favor employees over the interests of the estate to ensure that any bonus payment is designed for the overall benefit of the bankrupt estate. This memo details the differences between bonus payments under sections 503(c)(1) and 503(c)(3) and explains how a chapter 11 debtor should design bonus payments to employees to ensure those payments pass scrutiny under these provisions.