P'tex KERP challenged by creditors, union, paper

WILMINGTON, DE — Last Friday's deadline for objecting to the Pillowtex Key Employee Retention Program has been extended by the federal bankruptcy court through at least today (Sept. 8) as creditors, the company's union and a newspaper prepare arguments for a scheduled hearing this Friday.

In the meantime, informal conversations between Pillowtex and the unsecured creditors' committee are continuing, aimed at better defining the plan and the roles of specific recipients in the bankruptcy liquidation process, according to an attorney involved in the talks.

By midday Friday only Knight Newspapers, owner of North Carolina's Charlotte Observer had actually filed a challenge to the plan, arguing in part that the sealing of employees' names violated the public's right to know and the First Amendment. But lawyers for the unsecured creditors and UNITE, Pillowtex's union, said in interviews late last week that their objections to the broader plan were in preparation and would be filed shortly.

Pillowtex attorney Michael Wiles, reached at his New York office, declined comment.

"It's too much money," said Mark Power, a partner with Hahn & Hessen, New York, representing the creditors' committee. "It doesn't appear to be properly structured to incentive-ize performance. It doesn't appear to structure the awards to specific individuals who are crucial to the liquidation process in that the pool [of 143 recipients] appears too large. It's definitely too rich. And some of these people appear to be rewarded for simply being there."

Power said discussions with Pillowtex were taking place in an effort to better understand the plan. "There's not a lot of detail, and we're trying to flesh out the role of each individual."

Broader issues of fairness were cited by Harris Raynor, southern regional director for UNITE, which represents the approximately 6,500 Pillowtex workers who have lost their jobs.

"It's a simple matter of equity," Raynor said. "These employees, some who've worked there 30 or 40 years, aren't even getting paid their vacation time. Why should management be getting bonuses? Why pay them for doing what they're supposed to do — come to work? I don't blame them, but these are the same people who brought us to bankruptcy."

Raynor, who has a seat on the unsecured creditor's committee, also claimed that KERP payments would come directly out of the pockets of the unsecureds.

"I'm nauseated by the fact that this appears to be standard operating procedure [in bankrupt corporations]," he said.

In the meantime, the Charlotte Observer has challenged Pillowtex's efforts to redact employees' names from the KERP plan filed with the court. Pillowtex argued in its filing that divulging the names might "embarrass" some executives and serve to undermine their work in the liquidation.

But the Observer countered there was no overriding or compelling evidence in favor of sealing the names and cited several federal court decisions requiring records to be made public.

"The Bankruptcy Code is designed to bring the debtor's affairs to light, not to hide them," stated one such citation involving an insurer.

"Debtors have failed to meet their burden of providing evidence that the interest in sealing the KERP information outweighs the strong presumption — based on the Bankruptcy Code, the federal common law and the First Amendment — that court records must be maintained and court proceedings much be conducted in public view," the objection stated. "There is a strong, legitimate public interest in this bankruptcy proceeding, arising in part from the pain of the loss of the livelihoods of thousands of former Pillowtex workers inside and outside North Carolina. That legitimate public interest should not be thwarted by debtor's speculative and unsubstantiated concern that some management employees who did not lose their jobs might be 'embarrassed' or might feel 'tension' should they learn that fellow Pillowtex employees are being paid more than they are in their current jobs."

"Normally, a company has the right to keep matters of payroll private," explained Robert Katzenstein of Wilmington, DE, firm Smith Katzenstein & Furlow, representing the newspaper. "But here the company is utilizing government processes through the bankruptcy court … there is no rationale for keeping them secret."