Carla’s Pasta employee bonus plans draw objection from U.S. trustee

By Sarah Lizee

Olympia, Wash., March 18 – Carla's Pasta, Inc.’s motion to implement a key employee retention plan and a key employee incentive plan drew an objection from Region 2 U.S. trustee William K. Harrington, according to a Wednesday filing with the U.S. Bankruptcy Court for the District of Connecticut.

“The motion is inappropriately silent about salient details of the background of the KERP participants,” Harrington said in his objection.

The U.S. trustee said that only job titles were provided, with no information about the identity, work history or salaries of the KERP participants.

“The omissions of the majority of such information impairs the assessment of the appropriateness of the relief,” Harrington said.

In addition, the U.S. trustee said the motion lacks sufficient information as to why the KERP participants, to the exclusion of other employees, are critical and essential for the survival of the debtors in Chapter 11 and why they are at risk for leaving given their longevity at Carla’s Pasta.

The motion doesn’t require any performance achievement or metric to receive a bonus payment, just employment through the closing of a sale or the effective date of a plan.

Harrington added that while the company seeks to reward the KERP participants for staying, the debtors have not demonstrated there is any likelihood of unsecured creditors receiving any money from the sale, or that the debtors will be able to propose and confirm a plan.

Also, the debtors offer no market standard or metric that would enable the court to determine whether the amount of the bonus payment, which is 20% of the KERP participants’ base salaries, is reasonable under the “business judgment” or any other standard, Harrington said.

Though it isn’t mentioned in the motion, two of the three KEIP participants are insiders of the company, Harrington said. Because the KEIP participants are insiders, the debtor is required to prove that the KEIP is primarily incentivizing, rather than retentive.

“Under the terms of the KEIP, the KEIP participants can earn their $25 million benchmark money and their $30 million benchmark money if the sale consideration hits the benchmarks, even if they personally do nothing to help achieve the result,” the U.S. trustee said.

Harrington said that absent some metric to achieve, this is simply an “inappropriate gift” to shareholder insiders by the debtors.

The South Windsor, Conn.-based pasta manufacturing company filed bankruptcy on Feb. 8 under Chapter 11 case number 21-20111.

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