Category Archives: shenanigans

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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Filed under cathartic, debunking, if you aren't outraged you aren't paying attention, law, money money money money, property rights, shenanigans

might as well go for a soda

Police in Wisconsin broke up a kegger last week. A root beer kegger. Wisconsin high school senior Dustin Zebro was irked that some of his friends were kicked off varsity sports teams after school officials spotted Facebook photos of them drinking from red cups. So to show that red plastic ups don’t always mean beer (he’s right, I remember putting mixed drinks in them, too), he threw a root beer kegger in the hopes of triggering more suspensions, then making school officials look silly. Turns out, the cops were called in on the gag, too.

Full story, and here. via reason.

And for those of you less familiar with the lyrical styling of Kim Mitchell, headline reference.

1 Comment

Filed under I believe the children are our future, shenanigans, stupid government, war on drug warriors

he doesn’t answer to the state

“I don’t answer to the state”:

he also doesn’t come across as a fun guy; I almost felt bad for the woman who was questioning him, until I remembered that she was trying to deprive him of his basic rights to free speech/press under the guise of a “Human Rights Commission”.

from his blog:

If you don’t pay attention, you might not even realize that freedoms are being eroded. I had half-expected a combative, missionary-style interrogator. I found, instead, a limp clerk who was just punching the clock. She had done it dozens of times before, and will do it dozens of times again. In a way, that’s more terrifying.

word.

[updated YouTube link; but the other one was funny too.]
[updated:  I also forgot to mention it initially, but this is happening in Alberta (Canada)]

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Filed under if you aren't outraged you aren't paying attention, liberty, politics, rant, shenanigans, stupid government

Hillary on subprime ‘crisis’: “everybody bears some responsibility”

on Meet the Press:

MR. RUSSERT: But, Senator, many people opted for those cheaper mortgages. They could’ve had a fixed mortgage at a higher rate, but they opted for a cheaper one. Should they not bear some responsibility?

SEN. CLINTON: Well, Tim, I think all of us should[1]. But I’d say three things about that. The bankers, the mortgage lenders, the brokers, all bear a lot of the responsibility, because many of the practices that were followed were just downright predatory and fraudulent. There is no doubt about that[2]. I started talking about this last March. A lot of people got into subprime loans who frankly could’ve been in a conventional fixed-rate loan. They were basically told that this was a better opportunity for them. Should they take responsibility? Yes, but [3] look at what will happen if we continue this cascade of foreclosures. Housing values are down. They’re down 6 percent[4]. That’s over $1.3 trillion in housing values in the last year. So everybody bears some responsibility[5].

[1] I, for one, bear no responsibility for any part of the subprime mortgage crisis, and I call shenanigans on Hillary Clinton for implying that I do.  If anyone can prove otherwise, have at it.

[2] I think there is plenty of doubt in her claim that practices were predatory and fraudulent; sure, some may have been predatory, and some fraudulent, but I doubt that many were both.  If they were fraudulent, borrowers should have no problem demonstrating as much and get back their losses plus damages.

[3] this “yes, but” clause is mixing issues; the state of nationwide housing values has no bearing on personal responsibility.  Should I stop paying my car loan because the price of gas is over $3?  Right.

[4] housing was a bubble anyhow, and the dramatic drops are more a function of that bubble than of 0.3% of houses being foreclosed (not that the foreclosures help the situation).

[5] Again, I refute this claim on it’s face, and object to any responsibility that Hillary is trying to project on me or my family.  It doesn’t take a village to screw up a home loan.

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Filed under angry, cuz I'm on a roll, damn lies, dumbfounded, finance, lies, politics, rant, shenanigans