A U.S. judge approved a reduced incentive plan for top executives of Sabine Oil & Gas Corp on Dec. 1, despite opposition from unsecured creditors who demanded that any bonus scheme be linked to a sales process for the bankrupt company.
Houston-based Sabine filed for Chapter 11 protection in July with $2.8 billion in outstanding debt, joining a growing rank of oil and gas producers suffering from plunging commodity prices.
Sabine's incentive program aims to motivate executives, including its CEO, to come up with a quick restructuring plan to emerge from Chapter 11.
The revisions, which received last-minute backing from second-lien lenders, include lowering the threshold payout for some executives and bringing forward the date for a bankruptcy confirmation hearing to June 15, 2016.
But the unsecured creditors committee, represented by Ropes & Gray, said that given the rapid rate at which the company is burning cash, it should explore a potential sale while it still has sufficient liquidity.
"It is not a sound exercise ... to spend millions of dollars on incentive awards for a program that irresponsibly fails to incent the debtors to even begin pursuing a sale," Ropes & Gray said in a court filing before the hearing.
"The primary duty of a Chapter 11 debtor is to maximize the recovery of creditors. If such maximization requires the sale of the business, such sale must be pursued," it said, noting that "nearly all comparable E&P Chapter 11 cases have ended in sale."
Bankrupt companies often seek approval for bonuses, but top executives and board members who are deemed "insiders" can participate only if the plan includes difficult targets, rather than mere retention payments.
U.S. Bankruptcy Judge Shelley Chapman for the Southern District of New York acknowledged on Tuesday the potential need for a sale plan given the dire circumstances in the energy sector. But he said Sabine still has the authority to present its own bankruptcy exit.
A hearing on whether the company can extend exclusive control over its bankruptcy will be held on Dec. 16.
The official committee of creditors of Sabine is also pursuing litigation over what it says was fraud in its merger with Forest Oil Corp nearly a year ago.
The case is Sabine Oil & Gas Corp et al, in U.S. Bankruptcy Court, Southern District of New York, No. 15-11835.
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