The government-appointed trustee in Petersen Healthcare's bankruptcy case has asked a federal court to stop the company from paying hundreds of thousands of dollars in incentive payments to “insiders,” including the skilled nursing chain's regional director.
Petersen filed for bankruptcy in March, but shortly before then, a representative for the company, which operates about 100 facilities across the Midwest, told McKnight's Long-Term Care News that it had no plans to close despite its deepening financial difficulties.
The company has continued to operate during the legal battle, even though some of its facilities are under receivership, and in mid-May it received a new $45 million bankruptcy loan to cover operating expenses.
The case is nearing a resolution, with a judge last month approving the sale of two groups of facilities to Petersen Acquisition LLC and HP Developers LLC. The judge also last month set conditions for Petersen and two lenders to which the company owes money that would allow a new trustee to take possession of additional facilities.
Following these two major events, Petersen Health filed a motion to pay approximately $1.3 million in bonuses to both company insiders and non-company insiders of its former company.
The company is claiming these payments under the Bankruptcy Code's Key Employee Incentive Plan and Key Employee Retention Plan as essential to completing the sale and maintaining regulatory requirements during the two-month transition period.
But a court trustee opposed the move last week, saying the proposed criteria were “vague and unclear, based in part on past events and merely part of the employees' regular duties and obligations” and therefore the incentive payments “are impermissible retention bonuses and approval should be refused.”
Board member Andrew R. Vara also noted in his formal objection that Petersen Health’s motion expressed concerns about the impact on patients if the potential bonus recipients left the company. They are not direct caregivers but “executives (insiders) and senior management.”
The KEIP plan will pay a total of about $560,000 to four employees, while the KERP plan will split more than $730,000 among 26 “non-internal key employees,” who are regional directors and will each receive an amount equal to about 28% of their salary, according to Valla.
The trustee, Vara, is essentially a manager overseeing Petersen Health's assets during the process. The official committee of unsecured creditors also opposes the company's plan.
The judge scheduled a hearing on the matter for Wednesday morning.
An attorney for Petersen Health did not respond to McKnight's request for comment Monday.
