The beleaguered company’s proposed incentive plan, filed on Sept. 4, has been approved by Judge Cecelia Morris, according to documents filed with the United States Bankruptcy Court in the Southern District of New York.
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As part of the terms of the plan, Barneys CEO Daniella Vitale and CFO Sandro Risi would be entitled to share a monetary reward — along with additional payments — if they manage to score a sale amounting to $1 million or higher than its “floor value” (which includes the costs of secured debt as well as administrative and priority claims). So assuming they brought in a price of $1.01 million above floor value, Vitale and Risi would split those proceeds.
“The purpose of the plan,” the filing read, “is to incentivize and reward key executives for maximizing sales proceeds in connection with a sale of, or some or all of the assets of, Barneys New York,” plus its subsidiaries and affiliates.
Market-driven incentives and retention-based programs are not unusual in bankruptcy cases. In December, Sears Holdings Corp. asked the same bankruptcy court to reward key employees with $4.25 million over the half year and $8.5 million if the struggling retailer managed a successful reorganization or sale by October 2019.
“Incentive plans, as they have in Barneys for the two top executives, are standard-operating procedure in bankruptcy cases, especially where a quick sale of all the debtor’s assets is sought,” explained attorney David H. Wander, who chairs the bankruptcy, financial restructuring and creditor rights department at New York-based law firm Davidoff Hutcher & Citron LLP.
He added, “The key questions are what is an appropriate amount of money to pay and what is an appropriate target to achieve. In this case, it appears that the key stakeholders have done the negotiation and come to an agreement that is now acceptable to the court. But very often, whatever is proposed in the beginning is not what it is in the end.” (Wander represents two unsecured Sears creditors, as well as one vendor party in Barneys’ case.)
A day after filing for Chapter 11 bankruptcy protection on Aug. 6, Barneys managed to secure new financing from Brigade Capital Management LP and B. Riley Financial Inc. The offer allows the department store chain to pay out the $75 million it received from Hilco Global and the Gordon Brothers Group, with the remaining $143 going to continuing operations.
A Manhattan institution for nearly a century, Barneys has struggled in the face of skyrocketing rents and changing consumer demands that have long weighed heavily on its margins. The company was burdened with an annual rent bill that reportedly rose dramatically early this year to upwards of $44 million, particularly at its flagship store on 660 Madison Ave., which continues to face significant property taxes.
Over the past month or so, the department store chain shuttered units in Las Vegas, Chicago and Seattle, and also closed some warehouse locations and smaller concept stores as part of its restructuring plan. The company, however, received court approval to continue paying employee wages and honoring customer orders as it works toward meeting its go-forward financial commitments. It has until Oct. 24 to find a buyer or face liquidation.
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