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bankruptcy Catch-22

In re BearingPoint Bankruptcy;

First off, IANAL, but my analysis seems to jive with the judge’s actions (and inactions) and what has been argued by legal teams on both sides.

Ex-BearingPoint employees seem to be asking…

“Why can’t the judge just instruct the PTO to be paid out?”

In the Bankruptcy law, Section 507,  it specifies the priority of claims.  ‘Fourth-tier’ claims are “allowed unsecured claims” which include “wages, salaries, or commissions, including vacation, severance, and sick leave pay earned by an individual”.  Our accrued Personal Time Off (PTO) would fit this description.  The code specifies a limit of $10,950 and anything above and beyond ($11K+) is considered an unsecured claim, and it gets lumped in with all the general creditors. That is both codified law (Section 507) and tested/demonstrated in precedent (referenced in the objections by the Creditors in #688 “Order to Vacate” — see a list of references at the end).

So for those of us owed under $10K, the good news is that we are in line to get it.  The bad news is it’s not considered an “administrative expense” (expense to keep the business going thru bankruptcy), and so it is to be paid out once the firm liquidates (Chapter 7 Bankruptcy).

“Why can’t the judge instruct that PTO under $11,000 be paid out immediately/ASAP?”

The reason is that only administrative expenses can be paid out right now (§ 503).  503(b)(1)(A) specifies “wages, salaries, and commissions for services”, but makes no mention of vacation or severance, as was specfically indicated in section 507.

The reason that PTO payout is not an admin expense seems to be a kind of catch-22; it’s obviously important to the ongoing operations to keep employees on-board; but once the employee is terminated (which would trigger the PTO payout) the PTO payout doesn’t provide any benefit to the company (or the creditors) — after all, the ex-employee is no longer contributing anything to the company. The promise of the PTO payout is a benefit, but the actual payout isn’t — see the distinction there? And while the judge controls the $$, he doesn’t control the actions/promises of executives, so there is no real remedy that the judge can offer.  If he allows the payout to , it denies the creditors their rightful claim to the money in liquidation.

So, we have to wait for liquidation (Chapter 7).

“How is this fair?  I earned that vacation time…”

I couldn’t agree with you more.  It’s not fair.

The lesson to be learned here — and this is a lesson for all employees everywhere — is that if you ‘bank’ vacation time, you have to consider that vacation time is at some risk.  One letter to the judge, by someone who I followed on the corporate wiki and respect and who I don’t mean to criticize, stated (emphasis mine):

The Debtors* [sic] entered into a risk-based investment with BearingPoint and stand to lose those investments.  The BearingPoint PS Group employees took no risk. We worked hard, earned the PTO… and now we just want what we were promised.

* I’m pretty sure he meant Creditors, those who extended loans or bonds to BearingPoint.

Well… that’s like saying I took no risk driving to work today:  I drove within the speed limit, I stopped completely at every stop sign, I wore my seatbelt, I have airbags… so it’s riskless, right?  We all know that just getting in your car in the morning includes an assumption of risk, and signing on to work for any firm or organization has to include a similar assumption of risk.  Continuing to stay on with BearingPoint through the past few years was an implicit acceptance of an increasing amount of risk…  and I know, I did the exact same thing, underestimating the risk involved each step of the way.

“How is this fair?  Those executive are getting bonuses for selling off the pieces and we get nothing!”

Yeah, this one is tough to swallow, but it makes sense if you look at the bankruptcy framework.

Those bonuses are related to selling off pieces of the company and bringing in cash, cash that will go to creditors.  That sounds like it would fit “commissions for services” per 503(b)(1)(A).  And ultimately that cash goes to the creditors, and the PTO payout is fourth-tier priority on that money — so we should get it before the Committee of Unsecured Creditors.

An optimistic (kool-aid flavored?) spin would be this:  “we needed the execs to sell off the pieces so there will be any money left when we go to liquidation; if we didn’t throw them a bone to make that happen, we would have virtually zero-chance* at getting up to paid for our PTO… (the up-to-$10K part)”

[* there I go again, thinking we have a greater-than-zero-chance at this moment in time…  mmmm, kool-aid.]

Seriously, this makes me sick, but it seems to be legal and legit.

“But I’m mad as hell; what can we do?”

Unfortunately, I don’t think sending letters to the judge is going to change anything.  There is the bankruptcy code, and legal precedent, and beyond that the judge doesn’t have the latitude to do what many ex-employees are asking.

There have been claims, in letters and in the objections by Deloitte, that failure of the judge to act will set a precedent and that in the future employees might be denied these kinds of payouts.  The truth is, at least from what I can see, our case is proceeding according to existing precedent — I can see no reason why BearingPoint management should have assumed that PTO would be considered an adminsitrative expense.

It seems that BearingPoint bankruptcy lawyers should have known this was the probable outcome.  They had to know pretty early on that there were some people with way more than $10K in PTO — this should have raised a flag for them.

If (and this is a big if) it can be proven that management (Harbach) was told by the lawyers that this was the probable outcome, and he continued to state to employees that he thought PTO would be paid out on termination, knowing full well that our continued service would mean higher value for the assets and therefore a bonus for himself — is this enough to add up to Fraud?  Not just a fraud, like we all know it’s a fraud, but real criminal Fraud?

If the lawyers missed it, maybe we can get back some of the legal fees for their negligence.  Or is that just getting desperate?

“What does fourth-tier priority unsecured mean?”

Paraphrasing Section 507, the priorities are:

  1. Spouse and Child Support (I guess the same code applies to personal bankruptcy as to corporate bankruptcy).
  2. Administrative Expenses allowed under section 503(b).
  3. Unsecured claims allowed under section 502 (f) — this gets a little convoluted.
  4. Allowed unsecured claims for wages, salaries, commissions, and vacation.
  5. Allowed unsecured claims for contributions to an employee benefit plan.
  6. Allowed unsecured claims of persons engaged in the production or raising of grain, or engaged as a United States fisherman.  (Seriously.  Crazy specific get worked into these laws, no?)
  7. Allowed unsecured claims of individuals of money in connection with the purchase, lease, or rental of property, or the purchase of services.
  8. Allowed unsecured claims of governmental units.
  9. Allowed unsecured claims based upon any commitment by the debtor to a Federal depository institutions regulatory agency.
  10. Allowed claims for death or personal injury resulting from the operation of a motor vehicle or vessel if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.

After all that, then I think the creditors get to fight over the scraps.

—————–

alright, that’s it for now.  if there is any good news, it’s that liquidation may happen by the end of this week, so at least we’ll have some closure.

Links

SaveMyPTO.com was a blog set up to rally employees.  There are only really three posts, and the comments have fallen victim to spam.  Still, there is some useful content in the early comments:

BearingPointInfo.com has the case docket and all the petitions, objections, and letters to the judge:

  • First Day Motion to pay Employees Wages, Salaries, and Benefits (#9)
  • Motion of Order to Vacate Severance and PTO (#688)
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AT&T: Hands Off My Earned Leave!

You heard me Ma Bell.  You too Mellon Bank

BACKGROUND

This is going to be brief, but here’s the gist of it:

  • the company I worked for went into Bankruptcy
  • from the beginning we were assured that wages and accrued Paid Time Off (PTO) would be paid
    • THIS WAS CRITICAL because if 15,000 people started using up the PTO they had accrued, the entire company would have fallen apart before it could have been pieced-out and sold-off
    • it was also policy to pay out PTO if you left the company; there was no “use it or lose it”
  • now the Committee of Unsecured Creditors has objected to the PTO payout, calling them “golden handshakes” and bonuses
  • … nothing could be further from the truth — those who accrued the most hours are those who worked the hardest for the company, and for the creditors during this bancruptcy period — people who put off vacations and time off to BILL HOURS to clients which is the sole source of revenue for the company.  It’s painfully ironic that those who worked hardest are positioned to lose the most…
  • for the record, I wasn’t one of those working the hardest — I used 101% of my annual PTO last calendar year; and I still had over 90 hours in the bank when I left…

Many of my colleagues are writing to the judge to explain their position and situation — that’s all well and good, but there seems to be a very real chance that the judge could find legal reasons to support the objection.  Changing that one man’s mind seems like a slim chance to me…

It’s getting a little late in the process, but it just occurred to me that maybe we can find support in the employees of the Committee members, or in their customers.  Do you want to work for, or give your consumer dollars to, a company that demonstrates such disrespect forhard working employees and their families?  Especially in the middle of a recession?

CALL TO ACTION

  1. If you work for AT&T, tell management that you are aware of this situation and you think it’s a shame.  Feel free to email your corporate lawyers at James.Grudus@att.com (full address below).Mellon employees and customers:  same thing, and Mellon’s lawyer is at david.m.kerr@bnymellon.com

  2. If you agree that this is wrong and want to spread the word:
    LINK TO THIS POST; blog about it, email the link, etc.
    TWEET it — I don’t get fully get twitter, but have at it.
    Visit SaveMyPTO.com for more viewpoints and updates
    If you are a lawyer or legal buff, the case dockets are at BearingPointInfo.com

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Thomas Friedman wants you to pay more for energy

I can’t say it any more clearly than that.  Watching Meet-the-Press, he advocated that government should mandate a certain percentage of electricity be generated from renewable sources.  The only reason that they would need to be mandated is that they are more expensive, which power companies would avoid in order to reduce their costs*.  If renewable sources were more cost-effective, then energy companies would already be using them (or moving to them) to displace dirty-dirty-coal energy.  In fact, this is the case in some areas, namely where hydro-electric power is a big contributor.  Which raises the question — why doesn’t anyone talk about hydro-power anymore?  Now it’s all solar and wind farms… did Hydro cease to be a renewable, clean, technology?  Just curious.

Did anyone tell Friedman, or the rest of the alternative-energy loving population, that we’re in the middle of a financial and economic crisis?  If McCain claims that the economy is ‘fundamentally sound’, they’ll rip into him for being out of touch.  How is this any different?**

Anyhow, as long as mandates are driving adoption, you’re only going to get the minimum amount of ‘alternative’ energy sources to meet the mandate.  Above and beyond that, power companies exist to make a profit, and for the most part consumers are going to choose the least expensive energy option.  (Of course, there are some outliers who will pay more for alternative energy our of some sense of duty, guilt, or piety.)

Friedman’s hope is likely that by forcing enough power to alternative energy sources, there will be some innovation in alternative energy production that will radically change the game.  I’m not sure if there are any examples of this working in the past:  MPG mandates on automobiles have not encouraged innovations that created huge gains — even hybrids are barely enough to keep entire manufacture fleets above their EPA standards.  If federal mandates magically pushed us through these types of barriers, we’d all be driving 100 mpg (likely 100% internal combustion, since hybrid’s are more complicated than they’re worth) cars.  Or electric cars that go farther than 40 miles per charge…  Seriously, how that dinky little Smart car gets less than 100mpg, I’ll never understand.

OK, so MPGs was only one example — if anyone has an example of a federal mandate spontaneously causing leaps in innovation, I’m all ears.  And no, the government never mandated anything related to TCP/IP adoption…

Friedman: “What I say is if climate change is a hoax, it’s the greatest hoax ever perpetrated on the United States of America.” (which I thought was a Jesus reference, but now Google seems to be betraying me and not indicating the original source of the phrase; only recent antecendants).  He made this reference as though it was proof that global warming is real (after all, it couldn’t be an elaborate hoax!), completely oblivious to the fact that many reasonable people think otherwise.

“Because everything we would do to get ready for climate change, to build this new green industry, would make us more respected, more entrepreneurial, more competitive, more healthy as a country.”  Respected for falling for an elaborate hoax?  Entrepreneurial for developing solutions to a problem that doesn’t exist — and that in the end nobody is going to want to pay more for?  More competitive by investing more in basic scientific research? — OK, that might actually be valid, but if global warming is a hoax and we fund science aimed at solving global warming problems (ie. a level or two above basic science, like building a better hybrid-engine) then we miss the boat on that.  More respected?  Do you think the truly poor in the world have a huge amount of respect for us, while they starve, knowing that we’re spending discretionary dollars on wind-generated energy instead of dirty coal?  Do you think they’re thinking, “gosh, I’m hungry today, but at least American’s are treating the planet better”?  I’m guessing they’d rather have a full belly.  Better to buy dirty energy, send our savings to Africa, and sustain a young life that might solve some entreprenurial problems closer to his own home; and which might spill over to the rest of the world.

[quotes from Meet the Press transcript]

* let me state this another way:  if alternative energy sources were already more cost-effective, power companies would be turning to them en masse to reduce their energy costs and extract more profits from consumers.  the fact that this is not so is proof that alternative sources cost more (fully-loaded, lifecycle costs; not marginal costs)

** I know, I know; just as they’ll call for alternative energy mandates, and at the same time call for subsidies or exceptions so the poor won’t have to bear the burden.  so the Rich will pay all the alternative-energy excess…  and in their eyes it couldn’t be more fair than that.

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translation: become a shareholder

am I the only one who sees that as the obvious message from this editorial cartoon?

what I imagine everyone else sees: being a wage slave is a run-around, a rat race.  (no argument there.)  and the ‘stockholders’ sign is supposed to imply that a share of the profits are unattainable to anyone but the CEO.

that couldn’t be further from the truth — almost anyone can be a shareholder, just buy some shares.  many public companies have employee stock purchase plans, some even give discounts on the stock to encourage employee ownership.*

it’s true that CEO’s may receive stock grants and options as part of their compensation package, and no doubt that puts them on the fast track to wealth accumulation if the company is profitable — but it’s misleading to imply that stock ownership is out of reach of everyone else.

[* full disclosure:  I have no idea why I’m promoting employee stock purchase plans so heavily — I’ve been virtually Enron’d (Worldcom’d?) by our plan.  I guess I hold out hope that next time around, things could be better — the same investment in a company that isn’t actively trying to go bankrupt and I could be sitting pretty.  long story short, your mileage may vary — buyer beware.]

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bigger than I would have imagined

a view of the Earth and Moon, from Mars.

nevermind — when I first saw this image I assumed that the viewpoint was perpendicular to the moon’s orbit of the Earth; the way you would expect to see it if it was diagrammed in a science textbook. and if that was the case, the moon looked too large and too close to Earth… but then I realized that the moon’s plane could be tilted towards Mars, giving the perspective the moon is much closer to Earth when in fact it is closer to Mars (so it appears larger, relatively).

still, even after over-thinking the whole thing, it’s pretty awe-inspiring.

tip to reason. we like the moooon! (coz it is close to us)

update:  I guess I missed this picture a few years ago, where the moon looks huge and almost crashing into the Earth!

yikes!  who will save the children?!  that was taken from the Voyageur probe, or some other wasteful NASA program…

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as dumb as he/we want to be

I just love picking on Thomas Friedman, for some reason:

Hillary Clinton has decided to line up with John McCain in pushing to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for this summer’s travel season. This is not an energy policy. This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks. What a way to build our country.

No, not Saudia Arabia — Canada and Mexico! Canada is our #1 oil source (both crude and refined), and Mexico is #3. Combined they provide more oil than Saudi Arabia, Nigeria (#4), Venezuela, and Iraq, combined (or very close, depending on the particular month).  We import almost twice as much from Canada then Texas produces (I did not realize that).  But I guess shipping money to Canada doesn’t sound so nefarious, doesn’t have all the connotations of Cheney-Haliburton-Iraq backroom deals and such.

I think I figured out why so many people make the Saudi mistake — they are clearly the #1 oil exporter in the world. And I suppose the assumption is that since the US is the #1 importer, we must be buying their oil… but the reality just underscores the nature of the global oil market. I imagine we get oil from our closest neighbors first because pipelining is so much cheaper than shipping via tanker ships. As the price of oil goes up and oil shale in Canada becomes more cost-effective, the percentage of North American oil imported to the US could increase.

Anyhow, Friedman is all upset that the US government doesn’t have a significant wind/solar program:

The Democrats wanted the wind and solar credits to be paid for by taking away tax credits from the oil industry. President Bush said he would veto that. Neither side would back down, and Mr. Bush — showing not one iota of leadership — refused to get all the adults together in a room and work out a compromise. Stalemate. Meanwhile, Germany has a 20-year solar incentive program; Japan 12 years. Ours, at best, run two years.

Well, good for Germany and Japan. This shouldn’t be a source of consternation for Americans — we should take comfort that somebody, somewhere in the world is committing time and resources to develop better wind and solar power. Because here’s the thing — and I can’t believe Friedman ignores this point — IT’S A GLOBAL ECONOMY (isn’t he’s supposed to be Mr. Globalization?), and when/if great advances are developed, Americans and Canadians and Saudis (if they’re so inclined) will be able to buy this technology from the Germans.  German engineering gave the world the automobile and Heidi Klum — I’m willing to give them a shot at this…

I thought we had moved beyond the Cold War mentality of Not Invented Here, or maybe I’m just overly optimistic.  Transistor technology and computing was invented and revolutionized in America — does that mean that we’re the only country to benefit from computers and information technology? Of course not. The same will be true of eco-friendly power.

Unless, of course, the investments of Germany and Japan do not reap any rewards, in which case we should all be glad it is their misguided investment and not ours.  After all, don’t we have a recession to dig ourselves out of?

All I know is the next six months are critical… maybe then we should re-evaluate a federal/nationwide investment.  (just kidding)

Final thought:  domestic oil production peaked in 1970 at 9.6M barrels per day (about 2/3 of our current needs) but has trailed off to 5.1M barrels per day (a decline of 48%)… anyone got an easy answer why that is?  did the wells dry up?

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