IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION

Transcription

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION In re: A GACI, L.L.C., Debtor. Chapter 11 Case No. 18- DEBTOR S EMERGENCY MOTION FOR AN ORDER AUTHORIZING THE DEBTOR TO (I) PAY CERTAIN PREPETITION (A) EMPLOYEE WAGES, OTHER COMPENSATION AND REIMBURSABLE EMPLOYEE EXPENSES AND (B) INDEPENDENT CONTRACTOR OBLIGATIONS; AND (II) CONTINUE EMPLOYEE BENEFITS PROGRAMS A GACI, L.L.C. ( A GACI or the Debtor ), debtor-in-possession in the abovereferenced chapter 11 case, files this Debtor s Emergency Motion for an Order Authorizing the Debtor to (I) Pay Certain Prepetition (A) Employee Wages, Other Compensation and Reimbursable Employee Expenses and (B) Independent Contractor Obligations; and (II) Continue Employee Benefits Programs (the Motion ) and in support thereof, respectfully states as follows: Jurisdiction and Venue 1. The United States District Court for the Western District of Texas (the District Court ) has jurisdiction over the subject matter of this Motion pursuant to 28 U.S.C The District Court s jurisdiction has been referred to this Court pursuant to 28 U.S.C. 157 and the District Court s Order of Reference of Bankruptcy Cases and Proceedings dated October 4, This is a core matter pursuant to 28 U.S.C. 157(b), which may be heard and finally determined by this Court. Venue is proper pursuant to 28 U.S.C and 1409.

2 Background 2. On January 9, 2018 (the Petition Date ), the Debtor filed a voluntary petition for relief under Chapter 11 of Bankruptcy Code, which commenced the above captioned case (the Chapter 11 Case ). The Debtor continues to manage and operate its business as a debtor-inpossession pursuant to Bankruptcy Code 1107 and An official committee of unsecured creditors has yet to be appointed in this Chapter 11 Case. Further, no trustee or examiner has been requested or appointed in this Chapter 11 Case. 4. A detailed description of the Debtor and its business, and the facts and circumstances supporting the Motion and the Debtor s Chapter 11 Case are set forth in greater detail in the Declaration of Mark Butterbach in Support of the Debtor s Chapter 11 Petition and First Day Motions (the First Day Declaration ), which was filed on the Petition Date and is incorporated by reference in this Motion. 5. As of the Petition Date, the Debtor employed 69 salaried employees and 2056 hourly employees (collectively the Employees ). Store Employees make up the largest segment of the Debtor s workforce. Each of the Debtor s store locations has between 15 and 70 employees, depending on the size and business demands of the location. Each store location typically has one manager and two to three co-managers. The Employees are responsible for the ongoing business operations of the Debtor. The Employees skills, knowledge and understanding with respect to the Debtor s operations are essential to the effective reorganization of the Debtor s financial affairs. 6. In addition to the Employees, the Debtor also retains from time to time specialized individuals as independent contractors to complete discrete projects and to fulfill 2

3 certain duties (the Independent Contractors ). As of the Petition Date, the Debtor employed 9 Independent Contractors. The Independent Contractors are a critical supplement to the Debtor s Employees. Relief Requested 7. By this Motion, the Debtor seeks authority under Bankruptcy Code 105(a), 363, 507(a)(4) and 507(a)(5) and Rule 6003 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), to pay certain prepetition obligations owed to either its Employees and Independent Contractors or those who provide employee benefits, to honor and continue certain employee benefits (collectively, and as described herein, the Employee Obligations ), 1 and to authorize financial institutions to receive, process, honor, and pay checks presented for payment and electronic payment requests relating to prepetition Employee Obligations. 8. As more fully described below, by this Motion, the Debtor seeks authority to pay the following aggregate amounts on account of prepetition Employee Obligations: Employee Obligations Unpaid Prepetition Amount Employee Wage Obligations $880,000 Payroll Software Fees $100,000 Independent Contractor Compensation $22,000 Unremitted Payroll Taxes and Deductions $222,000 Unpaid Payroll Tax Processing Fees $0 Employee Bonus Plans $2,000 1 The summary of the Debtors various Employee Obligations provided herein is qualified entirely by the Debtor s official policies or other practices, programs or agreements, whether written or unwritten, evidencing an arrangement among the Debtor and its Employees (as defined herein) (each, an Official Policy ). In the event of any inconsistency or ambiguity between the summary contained in the Motion and an Official Policy, the terms of such Official Policy shall govern. 3

4 Reimbursable Expenses and A GACI Credit $122,000 Cards PTO $340,000 Employee Benefits TBD 2 A. Employee Wage Obligations and Payroll Software Fees 9. In the ordinary course of business, the Debtor pays its Employees for, among other things, salaries, wages, overtime, car allowances, and other obligations (collectively, the Wage Obligations ). The Debtor pays its Employees on a bi-weekly cycle. Payroll is processed on Wednesday and covers the two-week period through the prior Saturday. Each pay-day, the Debtor either direct deposits the Employees paychecks into the Employees accounts, or pays the Employees via pay card. The Debtor uses Kronos for payroll planning and time-keeping functions; however, the Debtor administers payroll itself. On average, the Debtor pays Kronos approximately $12,000 per month for this service (the Payroll Software Fees ). As of the Petition Date, the Debtor estimates that it owes Kronos approximately $100,000 (the Unpaid Payroll Software Fees ). 10. The Debtor s most recent payroll was paid on January 5, 2018, which covered the time period ending on December 31, The Debtor estimates that, as of the Petition Date, approximately $880,000 in wages and salaries earned by the Employees prior to the Petition Date have accrued and remain unpaid (the Unpaid Wage Obligations ). Included in the calculation of Unpaid Wage Obligations is $60,000 of unpaid wages and salaries owed to 120 of the Debtor s former Employees that were terminated by the Debtor between the January 5, 2018 pay day and the Petition Date (the Terminated Employees ). 2 As discussed in more detail below, the Debtor s Medical Plan is self-funded. As a result, there is a delay period between a claim being incurred and being submitted to the Debtor. Therefore, the amount of prepetition claims attributable to Employee Benefits such as the Medical Plan is unknown at this time. 4

5 11. With two exceptions, the Debtor does not believe that the Unpaid Wage Obligations owed to any one employee exceed $12,850. The two exceptions are David Won and John Won. By this Motion, the Debtor is not seeking to pay any Unpaid Wage Obligations on account of any prepetition work performed by any Employee, as applicable, in excess of $12, By this Motion, the Debtor seeks authority to pay the Unpaid Payroll Software Fees as well as the Unpaid Wage Obligations (including Unpaid Wage Obligations owed to Terminated Employees), subject to a cap of $12,850 per Employee, in the ordinary course of business and consistent with past practice, and to continue to pay Wage Obligations and the Payroll Software Fees in the ordinary course of the Debtor s business on a postpetition basis. B. Independent Contractor Compensation 13. The Debtor relies on Independent Contractors in the ordinary course of its business. The Independent Contractors provide a wide range of services that are critical to the Debtor s operations, including, among other things, providing information technology and marketing assistance, as well as other tasks in furtherance of the Debtor s business. 14. As of the Petition Date, the Debtor estimates that Independent Contractors are owed an aggregate of approximately $22,000 on account of services rendered prior to the Petition Date (the Unpaid Independent Contractor Compensation ). The Debtor does not believe that it owes any individual Independent Contractor amounts in excess of $12,850 and, by this Motion, are not seeking to pay Unpaid Independent Contractor Compensation on account of any prepetition work performed by any Independent Contractor, as applicable, in excess of $12,850. 5

6 15. By this Motion, the Debtor seeks authority to pay the Unpaid Independent Contractor Compensation, subject to a cap of $12,850 per Independent Contractor, in the ordinary course of business and consistent with past practice, and to continue to pay compensation owed to Independent Contractors in the ordinary course of the Debtor s business on a postpetition basis. C. Payroll Taxes and Deductions 16. In various jurisdictions, A GACI is required by law, to withhold amounts from the Wage Obligations related to income taxes, healthcare taxes, and other social welfare benefits, including social security, Medicare taxes, and unemployment insurance (collectively, the Withholding Taxes ) for remittance to the appropriate taxing authorities (collectively, the Taxing Authorities ). 17. In certain circumstances, A GACI is also required to make additional payments from its own funds in connection with the Withholding Taxes (the Employer Taxes, and collectively with the Withholding Taxes, the Payroll Taxes ). In the aggregate, the Payroll Taxes total approximately $380,000 for each bi-weekly payroll. As of the Petition Date, the Debtor estimates that it owes approximately $127,000 on account of prepetition Payroll Taxes (the Unremitted Payroll Taxes ). 18. During each applicable pay period, A GACI also routinely withholds other amounts from certain Employees gross pay, including garnishments, child support, and deductions related to various Employee Benefits (defined below) (collectively, the Deductions and, together with the Payroll Taxes, the Payroll Taxes and Deductions ). As of the Petition Date, the Debtor estimates that it owes approximately $95,000 on account of prepetition Deductions. 6

7 19. The Debtor seeks authority to remit such unpaid prepetition Payroll Taxes and Deductions (and to continue to forward Payroll Taxes and Deductions on a postpetition basis whether or not related to the prepetition period) to the applicable third-party recipients in the ordinary course of business. D. Payroll Tax Processing 20. The Debtor s Payroll Taxes are managed by ADP, LLC ( ADP ). ADP also administers the Debtor s 401(k) Plan (defined below). On average, the Debtor pays ADP approximately $8,000 per month for its services (the Payroll Tax Processing Fees ). By this Motion, the Debtor seeks authority, but not direction, to continue paying Payroll Tax Processing Fees in the ordinary course of the Debtor s business on a postpetition basis E. Employee Bonus Plans 21. To ensure optimal performance by Employees, the Debtor has implemented the bonus plans described below (collectively, the Employee Bonus Plans ). Store Manager Sales Bonus: The Debtor maintains a store manager sales bonus plan for all store managers. The Store Manager Sales Bonus is based upon sales and payroll targets: when a store makes 5% over its sales plan and maintains +/- 2% in matrix payroll hours for the month, the store manager is entitled to receive a bonus of $1,000. Store Manager Shrink Bonus: The Debtor maintains a store manager shrink bonus plan for all store managers. The Store Manager Shrink Bonus is paid upon the conclusion of every physical inventory count, which occurs three times a year. When an A GACI store s shrink result is less than 2%, the store manager is entitled to receive a bonus of $1,000. When an O Shoes store s shrink result is less than 1.5%, the store manager is entitled to receive a bonus of $500. District Manager Sales Bonus: The Debtor maintains a district manager sales bonus plan for all district managers. The District Manager Sales Bonus is based upon sales and payroll targets: when a district makes 5% over its sales plan and maintains +/- 2% in matrix payroll hours for the quarter, the store manager is entitled to receive a bonus of $2,500. District Manager Shrink Bonus: The Debtor maintains a district manager shrink bonus plan for all district managers. The District Manager Shrink Bonus is paid upon the 7

8 conclusion of every physical inventory count, which occurs three times a year. When the district s shrink result is less than 2%, the district manager is entitled to receive a bonus of $5,000. Non-store Bonus: The Debtor maintains a non-store bonus plan for Employees that work at its company headquarters and its Von Ormy Distribution Center. The non-store bonus is based upon (i) earnings before income tax ( EBIT ), (ii) sales, and (iii) the Employee s actual amount of payroll for the year: o if the Debtor s EBIT is 5% to 6.99% of sales, then the amount of the non-store bonus is 3% of the applicable Employee s actual amount of payroll for the year; o if the Debtor s EBIT is 7% to 9.99% of sales, then the amount of the non-store bonus is 5% of the applicable Employee s actual amount of payroll for the year; and o if the Debtor s EBIT is above 10% of sales, then the amount of the non-store bonus is 8% of the applicable Employee s actual amount of payroll for the year. 22. As of the Petition Date, $2,000 of Store Manager Sales Bonuses were earned by two of the Debtor s store managers ($1,000 each) and remain unpaid (the Unpaid Store Manager Bonuses ). 23. By this Motion, the Debtor seeks authority, but not direction, to pay the Unpaid Store Manager Bonuses in the ordinary course of business and consistent with past practice, and to continue to the Employee Bonus Plans in the ordinary course of the Debtor s business on a postpetition basis. F. Reimbursable Business Expenses and the A GACI Credit Cards 24. Prior to the Petition Date and in the ordinary course of business, the Debtor reimbursed certain Employees for certain business expenses incurred in the ordinary course of their employment. This includes expenses relating to, among other things, mileage reimbursements, cell phone reimbursements, and a variety of miscellaneous expenses (the Reimbursable Expenses ). 8

9 25. All of the Reimbursable Expenses were incurred on the Debtor s behalf in connection with employment by the Debtor and in reliance upon the understanding that such expenses would be reimbursed. As of the Petition Date, the total amount of Reimbursable Expenses owed is estimated to be approximately $50,000. The Debtor seeks authority to pay and honor the prepetition Reimbursable Expenses and to continue to honor the Reimbursable Expense obligations on a postpetition basis in the ordinary course of business. 26. Additionally, the Debtor provides certain Employees with business related credit cards (collectively, the A GACI Credit Cards ) through JPMorgan Chase Bank, N.A. ( Chase ). The A GACI Credit Cards are used to pay certain business expenses on behalf of the Debtor, including travel expenses. The Debtor then pays Chase in the ordinary course of business. Generally, the payment to Chase occurs once a month when due, and the balance for the A GACI Credit Cards is paid in full at such time. The Debtor estimates that the prepetition balance owing on the A GACI Credit Cards as of the Petition Date is approximately $72,000. The Debtor requests authority, but not direction, to pay to Chase any prepetition amounts due and outstanding to Chase on the A GACI Credit Cards and to continue to pay the A GACI Credit Cards in the ordinary course so that Employees can have the continued ability to use the A GACI Credit Cards for business expenses required to maintain operations. G. Paid Time Off and Other Benefits 27. The Debtor provides slightly different paid time off ( PTO ) and other benefits depending on location, as shown in the chart below. California N/A Sick Days Full Time Employees Sick Days Part Time Employees Granted 24 hours on June 1 st each year Paid Time Off/Vacation Full time Employees can accrue.058 hours of PTO per hour worked, with a maximum of 120 hours or 15 days of PTO per year. The accrual cap with 9

10 Puerto Rico All Other Locations Accrue at a rate of 1 day or 8 hours for every calendar month in which the Employee has worked 115 or more hours. A maximum of 15 days can be carried over to successive years. N/A Accrue at a rate of 1 day or 8 hours for every calendar month in which the Employee has worked 115 or more hours. N/A previous year carry over is 210 hours. Full time and part time Employees accrues PTO at a rate of 1.25 days or 10 hours for each calendar month in which the Employee has worked 115 or more hours. The maximum accrual each year is 15 days or 120 hours. Full time Employees that have been employed longer than 90 days begin accruing paid vacation time retroactive to their hire date. Full time Employees can accrue a maximum of 120 hours or 15 days of PTO per year. A maximum of 40 hours are allowed to be carried over year to year. 28. Sick days may not be rolled over and are not eligible for cash payout. Employees are not permitted to cash-out PTO hours on demand; however, upon termination of employment, the Debtor s practice has been to pay terminated employees for the unused, accumulated PTO. As of the Petition Date, the cash balance of accrued PTO is approximately $340, The Debtor requests authority to permit its Employees to use accrued PTO and other leave, and the Debtor requests authority, but not direction, to pay accrued PTO to terminated Employees consistent with the Debtor s past business practices. H. Employee Benefit Plans 30. The Debtor maintains various employee benefit plans and policies for health care, dental, vision, disability, life, accidental death and dismemberment insurance, flexible spending and 401(k) savings plan (collectively, and as discussed in more detail below, the Employee Benefits ). 10

11 i. Medical Insurance 31. All full-time Employees (Employees that work over 30 hours per week) 3 that have been employed by the Debtor for over 60 days are eligible to receive medical, prescription drug, dental, and vision insurance coverage on the next fiscal month after the 60 day period is completed. 32. The Debtor provides its Employees with medical insurance and prescription drug coverage through a self-funded health plan (the Medical Plan ) administered by Meritain Health, Inc. ( Meritain ) with a $100,000 per-occurrence stop-loss policy in place (the Stop- Loss ) with Meritain. The Debtor s premium obligation under the Stop-Loss policy varies depending on the number of covered Employees; the January 2018 monthly premium was $26,129. As of December 2017, a total of 295 of the Debtor s employees are covered under the Medical Plan. The Employee portion of the cost of the Medical Plan is deducted each payroll period from the Employee s total pay. Each month, the Debtor pays a monthly administration fee to Meritain based on the number of covered employees; the January 2018 administration fee for the administration of the Medical Plan was $15, In addition to paying the administration fee, because the Medical Plan is selffunded, each week the Debtor pays for claims that have been incurred by the Employees under the Medical Plan. Because of the nature of a self-funded plan, it is impossible to predict the amount of claims that the Debtor will be required to pay for any given week. In 2017, the Debtor paid approximately $1 million in claims under the Medical Plan. 34. The Debtor seeks authority to remit any unpaid Medical Plan benefits and premium costs to administer the Medical Plan, to fund any amounts needed to pay the Stop Loss 3 Part-time Employees that are promoted to full-time status are eligible to begin receiving Health Benefits at the beginning of the next month after their promotion. 11

12 Insurance, and to continue providing the Medical Plan in the ordinary course of business on a postpetition basis. ii. Dental, Vision, Life, and Disability Coverage 35. In addition to coverage under the Medical Plan, the Debtor also provides certain Employees with the option to enroll in dental and vision insurance, life insurance, accidental death and dismemberment insurance, long and short-term disability insurance (collectively, the Supplemental Benefits ). Sun Life administers the Supplemental Benefits. The Debtor provides a basic life policy and accidental death and dismemberment policy to all full-time Employees that are enrolled in the Medical Plan at no cost to the Employees. The Debtor does not cover the cost of the premium for dental insurance, vision insurance, or short-term disability insurance. The total premium paid by the Debtor in connection with its share of Supplemental Benefits is approximately $650 per month. The Debtor seeks authorization to keep current with the Debtor s obligations for payment of any required premium and to transfer the Employees portion of all payments for Supplemental Benefits, including honoring any checks issued prepetition but not cleared as of the Petition Date. iii. FSA Accounts 36. In addition to providing the Health Benefits, certain of the Debtor s Employees also have flexible spending accounts for dependent and/or health care (the FSA Accounts ) administered by Benefit Management Administrators. Each payroll period a pre-determined sum is deducted from the participating Employee s total pay and deposited in the Employee s designated flexible spending account. 37. Because the Health Benefits and FSA Accounts are vital to the Employees and because the vast majority of the funds constituting unpaid Health Benefits are held in trust for the 12

13 Employees and are not property of the Debtor s estate, the Debtor seeks authority to remit all prepetition amounts owing for FSA Accounts, and to continue providing the FSA Accounts in the ordinary course of business on a post-petition basis. iv. 401(k) Plan 38. All Employees that have been employed by the Debtor for a minimum of six months and are over eighteen years of age are eligible to participate in a 401(k) plan (the 401(k) Plan ) managed by ADP. Approximately 140 Employees participate in the 401(k) Plan. The Debtor does not provide matching funds or otherwise incur costs relating to the management of the 401(k) Plan. For participating Employees, 401(k) funds are deducted from the Employees payroll and deposited in the 401(k) Plan. 39. The Debtor requests authority to continue offering Employees the ability to participate in the 401(k) Plan. Basis for Relief Requested A. Certain of the Employee Obligations are Entitled to Priority Treatment 40. With two exceptions, the Debtor does not believe that the total combined Wage Obligations, Reimbursable Expense obligations, and Health Benefits owed to any one employee exceeds $12,850 earned within the 180 days prior to the Petition Date. The prepetition Wage Obligations owed to David Won and John Won exceed $12,850. With respect to prepetition Wage Obligations owed to David Won and John Won, the Debtor is only requesting authorization to pay up to $12,850, and is not requesting authorization to pay remit payment for Wage Obligations in excess of $12, Pursuant to Bankruptcy Code 507(a)(4) and (5), certain of the unpaid prepetition Employee Obligations including Wage Obligations are entitled to priority 13

14 treatment in an amount up to $12,850 for each individual Employee. To the extent such claims are afforded priority status, the Debtor is required to pay these claims in full to confirm a chapter 11 plan. See 11 U.S.C. 1129(a)(9)(b) (requiring payment of certain allowed unsecured claims for (a) wages, salaries or commissions, including vacation, and sick leave pay earned by an individual, and (b) contributions to an employee benefit plan). As such, these claims would be entitled to payment in full under any plan. Therefore, authorizing the Debtor to make these payments at this time will affect only the timing of such payments. B. Payment of Certain of the Employee Wages and Benefits Is Required by Law 42. The Debtor also seeks authority to pay amounts for Deductions and Payroll Taxes to be provided to the appropriate entities. These amounts principally represent Employee earnings that governments, Employees, and judicial authorities have designated for deduction from Employees paychecks. Indeed, certain Deductions, including Employee contributions for Health Benefits, are not property of the Debtor s estate because they will be withheld from Employees paychecks on another party s behalf. See 11 U.S.C. 541(b). Further, federal and state laws require the Debtor and its officers to remit certain tax payments that have been withheld from Employees paychecks. See 26 U.S.C and 7501(a); see also City of Farrell v. Sharon Steel Corp., 41 F.3d 92, (3d Cir. 1994) (finding that state law requiring a corporate debtor to withhold city income tax from its employees wages created a trust relationship between debtor and the city for payment of withheld income taxes); DuCharmes & Co., Inc. v. State of Mich. (In re DuCharmes & Co.), 852 F.2d 194, 196 (6th Cir. 1988) (noting that individual officers of a company may be held personally liable for failure to pay trust fund taxes). Because the Deductions and Payroll Taxes are not property of 14

15 the Debtor s estate, the Debtor requests that this Court authorize it to remit all amounts relating to Deductions and Payroll Taxes. C. Ample Authority Exists to Authorize the Debtor to Honor Employee Obligations 43. Courts generally acknowledge that it is appropriate to authorize the payment (or other special treatment) of prepetition obligations in appropriate circumstances. See, e.g., In re Ionosphere Clubs, Inc., 98 B.R. 174, 179 (Bankr. S.D.N.Y. 1989) (granting authority to pay prepetition wages); see also Armstrong World Indus., Inc. v. James A. Phillips, Inc., (In re James A. Phillips, Inc.), 29 B.R. 391, 398 (S.D.N.Y. 1983) (granting authority to pay prepetition claims of suppliers who were potential lien claimants). Courts have relied on several legal theories, including legal theories based on Bankruptcy Code 1107(a), 1108, 363(b), and 105(a), to authorize payments of certain prepetition obligations. 44. Pursuant to Bankruptcy Code 1107(a) and 1108, debtors in possession are fiduciaries holding the bankruptcy estate[s] and operating the business[es] for the benefit of [their] creditors and (if the value justifies) equity owners. In re CoServ, L.L.C., 273 B.R. 487, 497 (Bankr. N.D. Tex. 2002). Implicit in the fiduciary duties of any debtor in possession is the obligation to protect and preserve the estate, including an operating business s going-concern value. Id. Some courts have noted that there are instances in which a debtor can fulfill this fiduciary duty only... by the preplan satisfaction of a prepetition claim. Id. The CoServ court specifically noted that the preplan satisfaction of prepetition claims would be a valid exercise of the debtor s fiduciary duty when the payment is the only means to effect a substantial enhancement of the estate.... Id. 45. Consistent with a debtor s fiduciary duties, courts have also authorized payment of prepetition obligations under Bankruptcy Code 363(b) where a sound business purpose 15

16 exists for doing so. See, e.g., In re Ionosphere Clubs, 98 B.R. at 175 (discussing prior order authorizing payment of prepetition wage claims pursuant to Bankruptcy Code 363(b); relief appropriate where payment was needed to preserve and protect its business and ultimately reorganize, retain its currently working employees and maintain positive employee morale. ); see also Armstrong, 29 B.R. at 397 (relying on Bankruptcy Code 363 to allow contractor to pay prepetition claims of suppliers who were potential lien claimants because the payments were necessary for general contractors to release funds owed to debtors). 46. Courts have also authorized payment of prepetition claims in appropriate circumstances pursuant to Bankruptcy Code 105(a). Bankruptcy Code 105(a), which codifies the inherent equitable powers of the bankruptcy court, empowers the bankruptcy court to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. 105(a). Under Bankruptcy Code 105(a), courts may permit preplan payments of prepetition obligations when such payments are essential to the continued operation of the debtor s business and, in particular, where nonpayment of a prepetition obligation would trigger a withholding of goods or services essential to the debtor s business reorganization plan. See In re UNR Indus., Inc., 143 B.R. 506, 520 (Bankr. N.D. Ill. 1992) (permitting the debtor to pay prepetition claims of suppliers or employees whose continued cooperation is essential to the debtors successful reorganization); In re Ionosphere Clubs, 98 B.R. at 177 (finding that Bankruptcy Code 105 empowers bankruptcy courts to authorize payment of prepetition debt when such payment is needed to facilitate the rehabilitation of the debtor); In re Gulf Air, Inc., 112 B.R. 152 (Bankr. W.D. La. 1989) (authorizing payment of pre-petition amounts due, inter alia, for wages, benefits, health 16

17 insurance premiums and per diem expenses under the necessity of payment doctrine, without regard to statutory priorities of Bankruptcy Code 507). 47. Many bankruptcy courts have recognized the importance of employees to a debtor s reorganization and the severe harm to employees that can arise if courts do not grant motions such as this one. In re Braniff, Inc., 218 B.R. 628, 633 (Bankr. M.D. Fla. 1998) (approving payment of prepetition employee wage claims due to the vital role the employees play to the debtor s reorganization). Similar relief to that requested herein has been granted by bankruptcy courts in Texas. See, e.g., In re Forest Park Medical Center at Southlake, LLC, Case No (Bankr. N.D. Tex. Jan. 25, 2016, docket no. 38); In re Dune Energy, Inc., Case No hcm (Bankr. W.D. Tex. March 10, 2015, docket no. 34); In re Reddy Ice Holdings, Inc., Case No (Bankr. N.D. Tex. Apr. 17, 2012, docket no. 83); In re Idearc, Inc., Case No (Bankr. N.D. Tex. Apr. 30, 2009, docket no. 195); In re Crusader Energy Group Inc., et al., Case No (Bankr. N.D. Tex. Apr. 2, 2009, docket no. 39); In re Heartland Automotive Holdings, Inc., Case No (Bankr. N.D. Tex. Jan. 9, 2008, docket no. 39); In re The Bombay Company, Inc., Case No (Bankr. N.D. Tex. Sept. 20, 2007, docket no. 64). 48. Nothing in this Motion is intended, nor should it be construed, to impair the Debtor s rights to contest the amount, basis or validity of any Employee Obligations that may be allowed to be due, and the Debtor expressly reserves all rights with respect thereto. 49. In order to maintain the continuity of its business and to preserve the morale of its vital labor force, it is essential that the Debtor be permitted to pay the funds requested through this Motion. The Debtor seeks the relief requested in this Motion on an emergency basis because any delay or disruption in providing employee compensation will destroy the 17

18 Debtor s relationship with the Employees and irreparably impair workforce morale at the very time when the dedication, confidence, and cooperation of these individuals is most critical. The Debtor faces the risk that its operations may be severely impaired if authority is not granted for the Debtor to make the payments described above. 50. Because the amounts represented by Wage Obligations are needed to enable the Employees to meet their own personal obligations, absent the relief requested herein, they will suffer undue hardship and, in many instances, serious financial difficulties. Moreover, without the requested relief, the stability of the Debtor would be undermined by the potential threat that otherwise loyal Employees would seek other employment. D. Payment of the Independent Contractor Obligations Would Facilitate the Debtor s Successful Reorganization 51. The Debtor also believes that the uninterrupted performance by the Independent Contractors is essential to conducting services that are critical to the Debtor s operations and to the Debtor s efforts to maintain a steady cash flow from its business throughout the Chapter 11 Case. Requiring the Debtor to seek to replace the Independent Contractors would significantly disrupt its operations and hamper its reorganization efforts. 52. Bankruptcy courts in the Fifth Circuit have regularly granted relief similar to that requested in this Motion. See, e.g., In re Erickson Inc., Case No (Bankr. N.D. Tex. Nov. 10, 2016) (Docket No. 47); In re CHC Group Ltd., Case No (Bankr. N.D. Tex. June 8, 2016)(Docket No. 289); In re Energy & Exploration Partners, Inc., Case No (Bankr. N.D. Tex. Dec. 23, 2015) (Docket No. 147); In re ALCO Stores, Case No (Bankr. N.D. Tex. Oct. 16, 2014) (Docket No. 68); In re Reddy Ice Holdings, Inc., Case No (Bankr. N.D. Tex. Apr. 17, 2012) (Docket No. 83); In re Texas Rangers Baseball Partners, Case No (Bankr. N.D. Tex. June 15, 2010) (Docket No. 203); In re Idearc 18

19 Inc., Case No (Bankr. N.D. Tex. Apr. 30, 2009) (Docket No. 195); In re Pilgrim s Pride Corp, Case No (Bankr. N.D. Tex. Dec. 2, 2008) (Docket No. 65). Request for Waiver of Stay 53. To the extent that the relief sought in the Motion constitutes a use of property under Bankruptcy Code 363(b), the Debtor seeks a waiver of the fourteen-day stay under Bankruptcy Rule 6004(h). Further, to the extent applicable, the Debtor requests that the Court find that the provisions of Bankruptcy Rule 6003 are satisfied. As explained herein, the relief requested in this Motion is immediately necessary for the Debtor to be able to continue to operate its businesses and preserve the value of the estate. Notice 54. Notice of this Motion has been provided to: (i) the Office of the United States Trustee; (ii) the Debtor s secured creditors; (iii) any party whose interests are directly affected by this specific pleading; (iv) those persons who have formally appeared and requested notice and service in these proceedings pursuant to Bankruptcy Rules 2002 and 3017; (v) counsel for and the members of any official committees appointed by this Court; (vi) the 20 largest unsecured creditors of the Debtor; and (vii) all governmental agencies having a regulatory or statutory interest in this case. WHEREFORE the Debtor respectfully requests that the Court (i) grant the Motion and (ii) grant such other and further relief as is just and proper. 19

20 RESPECTFULLY SUBMITTED this 9th day of January, HAYNES AND BOONE, LLP By: /s/ Ian T. Peck Ian T. Peck State Bar No David Staab State Bar No Victory Avenue, Suite 700 Dallas, TX Telephone: Facsimile: PROPOSED ATTORNEYS FOR DEBTOR 20

21 Exhibit A Proposed Order

22 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION In re: A GACI, L.L.C., Debtor. Chapter 11 Case No. 18- ORDER AUTHORIZING DEBTOR TO (I) PAY CERTAIN PREPETITION (A) EMPLOYEE WAGES, OTHER COMPENSATION AND REIMBURSABLE EMPLOYEE EXPENSES AND (B) INDEPENDENT CONTRACTOR OBLIGATIONS; AND (II) CONTINUE EMPLOYEE BENEFITS PROGRAMS Upon Debtor s Emergency Motion for an Order Authorizing the Debtor to (I) Pay Certain Prepetition (A) Employee Wages, Other Compensation and Reimbursable Employee Expenses and (B) Independent Contractor Obligations; and (II) Continue Employee Benefits 1

23 Programs (the Motion ) 1 filed by A GACI, L.L.C. ( A GACI or the Debtor ); and the Court having jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334; and the Court having found that this is a core proceeding pursuant to 28 U.S.C. 157(b)(2), and that the Court may enter a final order consistent with Article III of the United States Constitution; and the Court having found that venue of this proceeding and the Motion in the Court is proper pursuant to 28 U.S.C and 1409; and the Court having found that the relief requested in the Motion is in the best interest of the Debtor s estate, its creditors, and other parties-in-interest; and the Court having found that the Debtor s notice of the Motion and opportunity for a hearing on the Motion were appropriate under the circumstances and no other notice need be provided; and the Court having reviewed and considered the Motion and the First Day Declaration, and the Court having heard the statements in support of the relief requested in the Motion at the hearing before the Court (the Hearing ); and the Court having determined that the legal and factual bases set forth in the Motion and at the Hearing establish just cause for the relief granted herein; and upon all of the proceedings had before the Court; and after due deliberation and sufficient cause appearing therefore, it is HEREBY ORDERED: 1. The Motion is GRANTED as set forth herein. 2. Subject to the requirements of Bankruptcy Code 507(a)(4) and (a)(5), the Debtor is authorized, but not directed, to pay and remit in accordance with the Debtor s prepetition policies and programs, prepetition Employee Obligations and all costs incident to the foregoing in accordance with the Debtor s customary policies, including, but not limited to (i) the Unpaid Wage Obligations (including Unpaid Wage Obligations owed to Terminated Employees); (ii) the Unpaid Payroll Software Fees; (iii) the Unpaid Independent Contractor Compensation; (iv) the Reimbursable Expenses and the A GACI Credit Cards; (v) the Payroll 1 Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Motion. 2

24 Taxes and Deductions; (vi) the Unpaid Payroll Tax Processing Fees; and (vii) the Employee Benefits and fees related thereto in the ordinary course of business as they come due. 3. The Debtor is authorized, but not required, to maintain and continue to honor on a postpetition basis its practices, programs, and policies in place for the benefit of its Employees as were in effect as of the Petition Date, as such may be modified, amended, or supplemented from time to time in the ordinary course of business. 4. The Debtor is authorized, but not directed, to pay all post-petition costs and expenses incidental to payment of the Employee Obligations and Employee Benefits described in paragraphs 2 and 3 herein, including all administrative and processing costs. 5. Notwithstanding the relief granted herein and any actions taken hereunder, nothing contained in this Order or any payment made pursuant to this Order shall constitute, nor is it intended to constitute, an admission as to the validity or priority of any claim against the Debtor, a waiver of the Debtor s rights to subsequently dispute such claim or the assumption or adoption of any agreement, contract or lease under Bankruptcy Code The banks and financial institutions on which checks were drawn (or were to be drawn) or electronic payment requests were made (or were to be made) in payment of the prepetition obligations approved herein are authorized to receive, process, honor and pay all such checks and electronic payment requests when presented for payment, and all such banks and financial institutions are authorized to rely on the Debtor s designation of any particular check or electronic payment request as being approved by this Order. 7. Notwithstanding anything else in this Order to the contrary, any payments authorized to be made by this Order shall be subject to the terms, conditions, limitations, and restrictions set forth in (i) that certain Interim Order Authorizing Use of Cash Collateral and 3

25 Granting Adequate Protection [D.I. ] and any further cash collateral orders entered by this Court (collectively, the Cash Collateral Orders ), including, without limitation, the requirement that any payments authorized by this Order may only be made as permitted under the Budget approved in connection with such Cash Collateral Orders and (ii) that certain Order (I) Authorizing Continued Use of Existing Business Forms and Records, (II) Authorizing Maintenance of Existing Corporate Bank Accounts and Cash Management System, (III) Authorizing Payment of Prepetition Costs and Fees Associated with Customer Credit and Debit Card Transactions; and (IV) Waiving Certain U.S. Trustee Requirements [D.I. ]. 8. The requirements set forth in Bankruptcy Rule 6003(b) are satisfied by the contents of the Motion or otherwise deemed waived. 9. The Debtor is authorized to take all actions necessary to effect the relief granted pursuant to this Order in accordance with the Motion. 10. Notwithstanding Bankruptcy Rule 6004(h), to the extent applicable, this Order shall be effective and enforceable immediately upon entry hereof. 11. Any objection to this Order must be filed within twenty-one (21) days after the date of the entry of this Order. If an objection is timely received from the U.S. Trustee, any creditor or party-in-interest, the Debtor shall request a hearing before the Court. If no objection is filed, the Order automatically becomes final. 12. This Court shall retain jurisdiction with respect to all matters relating to the interpretation or implementation of this Order. # # # 4

26 Submitted by: Ian T. Peck State Bar No David Staab State Bar No HAYNES AND BOONE, LLP 2323 Victory Avenue, Suite 700 Dallas, TX Telephone: Facsimile: PROPOSED ATTORNEYS FOR DEBTOR 5