On September 29, 2015, Judge Laurie Selber Silverstein of the Delaware Bankruptcy Court ruled on the objection of a distribution trustee to payment of the bankruptcy debtor’s investment banker.  This opinion caught my eye as it is unusual for objections to fee applications to merit written opinions.  The “Opinion” is available here.

In this case, the investment banker was seeking payment of a monthly fee (unopposed), a M&A fee (unopposed), a success fee (opposed), and related expenses (unopposed).  The investment banker appears to have successfully fulfilled its role in this case:  The debtors obtained DIP financing and a plan of reorganization was confirmed under chapter 11 of the Bankruptcy Code.  Considering the current bankruptcy climate, anything other than a 363 sale and conversion to chapter 7 is a success.  For a chapter 11 case to be confirmed – and within 4 months – is commendable.

Nevertheless, as part of the plan, a distribution trustee was appointed to be an active party in the post-effective date activities necessary in the bankruptcy.  One such activity was objecting to fee applications in order to maximize distributions to unsecured creditors.  Pursuant to the terms of the investment banker’s retention, the Success Fee was to award the investment banker for obtaining DIP financing.  However, the Success Fee would not be paid if the DIP financing was provided “as part of a contemplated sale transaction, and such sale transaction is consummated…”  Opinion at *5.

The Distribution Trustee argued that the change of control provided by the consummated reorganization plan qualified as a sale transaction.  His argument was compelling, particularly as an auction and sale hearing was held to approve the transaction which was the basis of the plan of reorganization.  However, Judge Silverstein held that the investment banker’s “right to a Success Fee is based upon the Retention Terms, not the characterization of the transaction for purposes of the Sale Hearing.”  Opinion at *4.  She held that had the Success Fee been withheld in the retention agreement upon the occurrence of a “Transaction,” that it would not be awarded in this case.  However, the term “sale transaction” was used.  There was no sale transaction here.  Instead, the change of control was effected through the plan process.

My $.02

This Distribution Trustee was put in a tough position.  He was not a part of the original contract drafting, but was tasked, after the fact, with trying to reduce the payment made to the investment banker.  If you are party to, or possibly affected by a contract, it is always best to have a seat at the table for its drafting.  Ideally, you’ll have an attorney sitting with you to make sure that you can have the best language possible – with an eye towards a result like the one achieved by the investment banker in this case.