Marcus A. Helt (TX 24052187) FOLEY GARDERE …strettodocs.s3.amazonaws.com/files/19c21f14-f4f1-4113-89...PREPAID CARD PROGRAM, AND (II) GRANTING RELATED RELIEF 1 The Debtors in the

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Marcus A. Helt (TX 24052187) FOLEY GARDERE Foley & Lardner LLP 2021 McKinney Avenue Suite 1600 Dallas, TX 75201 Telephone: (214) 999-3000 Facsimile: (214) 999-4667 Email: [email protected] -and- Jack G. Haake (pro hac pending) FOLEY & LARDNER LLP Washington Harbour 3000 K Street, N.W., Suite 600 Washington, D.C. 20007-5109 Telephone: (202) 295-4085 Facsimile: (202) 672-5399 Email: [email protected] Proposed Counsel for the Debtors and Debtors in Possession

IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TEXAS

SHERMAN DIVISION In re: § Chapter 11 § ZENERGY BRANDS, INC., et al.,1 § Case No. 19-42886 § Debtors. § (Joint Administration Requested)

DEBTORS’ MOTION FOR ENTRY OF INTERIM AND FINAL ORDERS (I) AUTHORIZING

THE DEBTORS TO (A) PAY PREPETITION CONTRACTOR FEES, SALARIES, OTHER COMPENSATION, AND REIMBURSABLE EXPENSES AND (B) CONTINUE

PREPAID CARD PROGRAM, AND (II) GRANTING RELATED RELIEF

1 The Debtors in the above-captioned chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are: Zenergy Brands, Inc. (1686); NAUP Brokerage, LLC (7899); Zenergy Labs, LLC (8045); Zenergy Power & Gas, Inc. (1963); Enertrade Electric, LLC (8649); Zenergy & Associates, Inc. (4022); and Zen Technologies, Inc. (7309). The above-captioned Debtors’ mailing address is 5700 Grante Pkwy, #200, Plano, TX 75024.

Case 19-42886 Doc 9 Filed 10/24/19 Entered 10/24/19 21:08:30 Desc Main Document Page 1 of 17

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The above-captioned debtors and debtors in possession (collectively, the “Debtors”)2

respectfully state as follows in support of this motion (the “Motion”):

Relief Requested

1. By this Motion, the Debtors seek entry of interim and final orders, substantially in

the forms attached hereto as Exhibit A and Exhibit B (the “Interim Order” and “Final Order,”

respectively), (a) authorizing, but not directing, the Debtors to (i) pay certain prepetition amounts

owing to or for the benefit of independent contractors, employment agencies, and reimbursable

expenses, and (ii) continue contractor benefits programs in the ordinary course of business,

including payment of certain prepetition obligations related thereto, subject to the caps and limits

set forth herein; and (b) granting related relief. In addition, the Debtors request that the Court

schedule a final hearing within approximately 21 days of the commencement of these chapter 11

cases to consider approval of this Motion on a final basis.

Jurisdiction and Venue

2. The United States Bankruptcy Court for the Eastern District of Texas

(the “Court”) has jurisdiction over this matter pursuant to 28 U.S.C. §1334 and the Standing

Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc from the United States

District Court for the Eastern District of Texas, dated August 6, 1984 (the “Standing Order”).

This is a core proceeding under 28 U.S.C. § 157(b)(2). The Debtors confirm their consent,

pursuant to rule 7008 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), to

the entry of a final order by the Court in connection with this motion to the extent that it is later

2 The Debtors filed their voluntary petitions for relief filed under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), on the date hereof (the “Petition Date”). A detailed description of the Debtors and their businesses, and the facts and circumstances supporting this motion and the Debtors’ chapter 11 cases, are set forth in greater detail in the Declaration of Joshua Campbell in Support of Chapter 11 Petitions and First Day Motions (the “First Day Declaration”), filed contemporaneously herewith.


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determined that the Court, absent consent of the parties, cannot enter final orders or judgments in

connection herewith consistent with Article III of the United States Constitution.

3. Venue of these cases and this Motion is proper pursuant to 28 U.S.C. §§ 1408 and

1409.

4. The legal bases for the relief requested herein are sections 105(a), 363(b), and

507(a) of title 11 of the United States Code, 11 U.S.C. §§ 101-1532 (the “Bankruptcy Code”),

Bankruptcy Rules 6003 and 6004, and Rule 9013-1 of the Local Rules of Bankruptcy Procedure

of the United States Bankruptcy Court for the Eastern District of Texas (the “Local Rules”).

Background

5. On the Petition Date, each of the Debtors filed with this Court a voluntary petition

for relief under chapter 11 of the Bankruptcy Code.

6. The Debtors continue to operate their businesses and manage their properties as

debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. As of the

date hereof, no trustee, examiner, or official committee of unsecured creditors has been

appointed in the Debtors’ chapter 11 cases. No date has been set for a meeting pursuant to

section 341 of the Bankruptcy Code.

7. Additional factual background regarding the Debtors, including their business

operations, capital and debt structures, and the events leading to the filing of these chapter 11

cases is set forth in detail in the First Day Declaration, which is fully incorporated in this Motion

by reference.


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The Debtors’ Workforce

8. Zenergy Brands, Inc. (“Zenergy”) and its affiliated Debtors’ workforce consists of

nine independent contractors (the “Contractors”).3 None of the Contractors are represented by a

union or collective bargaining unit. The Debtors do not have any employees.

9. The Contractors perform a wide variety of functions crucial to the Debtors’

operations. Their skills, knowledge, and understanding of the Debtors’ operations and

infrastructure are essential to preserving operational stability and efficiency. The Contractors

include trained personnel who are familiar with the Debtors’ operations and who cannot easily be

replaced. Accordingly, without the continued, uninterrupted services of the Contractors, the

Debtors’ restructuring efforts will be materially impaired.

10. At the same time, all of the Contractors rely on their compensation and benefits to

pay their daily living expenses and to support their families. Thus, the Contractors will be

exposed to significant financial difficulties if the Debtors are not permitted to continue

compensating their Contractors and maintaining certain programs benefiting the Contractors in

the ordinary course of business. Consequently, the Debtors respectfully submit that the relief

requested herein is necessary and appropriate under the facts and circumstances of these chapter

11 cases.

Summary of Contractor Compensation and Benefits; Contractor Fees

11. The Debtors seek to minimize the personal hardship that the Contractors would

suffer if prepetition Contractor-related obligations are not paid or remitted when due or as expected.

The Debtors, therefore, seek authority, but not direction, to pay and honor certain prepetition claims

and continue to honor obligations on a post-petition basis, as applicable, relating to, among other

3 One of the Contractor’s last day of work is projected to be October 18, 2019. That Contractor will be replaced by another Contractor.


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things, compensation and withholding obligations (collectively, “Contractor Compensation”) and

other benefits the Debtors have historically provided to the Contractors (collectively, the “Contractor

Benefits” and, together with Contractor Compensation, the “Contractor Compensation and Benefits”)

on an interim and final basis.

12. In addition, the Debtors seek to continue to honor the Contractor Compensation and

Benefits provided to Contractors and to pay Contractor Fees (as defined below) on a postpetition

basis in the ordinary course of business and pay all necessary costs related thereto.

Administration of Contractor Compensation and Benefits

13. In the ordinary course of business, the Debtors incur payroll obligations owed to

Contractors. These payroll obligations include base contractor fees owed to Contractors (the

“Contractor Fees”). On average, the Debtors incur approximately $16,260 per week in Contractor

Fees. The Debtors pay the Contractors on the first and fifteenth of each month. The period covered

for each remittance does not cover the approximate 15-day period. For example, in October 2019,

the amount paid on October 15, 2019 covers the time period from October 1, 2019 through October

9, 2019. The amount paid on November 1, 2019 covers the time period from October 10, 2019

through October 24, 2019. As such, there may be earned but unpaid Contractor Fees as of the

Petition Date.

Overview of Compensation and Benefits

I. Contractor Fees and Reimbursable Expenses

A. Contractor Fees

14. The Debtors directly engage Contractors, who are not employees, and pay Contractor

Fees for services provided by the Contractors. The Contractors are not eligible to receive any other

benefits other than reimbursement of their expenses.

15. As noted above, the Contractors are paid their Contractor Fees on the first and

fifteenth of each month. The Contractor Fees are paid directly from the Debtors’ operating account


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maintained by Zenergy Brands, Inc. (Acct. No. *0282). In addition to owed accrued but unpaid

Contractor Fees as of the Petition Date, the Debtors may also owe Contractor Fees to certain

Contractors because of, among other things, potential discrepancies between the amounts paid and

the amounts that Contractors believe they should have been paid, which, upon resolution, may reveal

that additional amounts are owed to such Contractors.

16. As of the Petition Date, the Debtors believe that approximately $69,250.00 in

Contractor Compensation will become due and owing within the first 21 days of these chapter 11

cases, which reflects prepetition Contractor Fees in the approximate amount of $55,400.00. By this

Motion, the Debtors request authorization to pay all such outstanding amounts up to $55,400.00 and

to continue paying Contractor Compensation on a post-petition basis in the ordinary course of

business and consistent with their prepetition practices.

B. Reimbursable Expenses

17. The Debtors reimburse Contractors for business expenses and other qualifying

expenses incurred in carrying out their responsibilities, including, but not limited to, expenses for

business-related travel and meal expenses and other qualifying expenses (collectively, the

“Reimbursable Expenses”). For example, the Debtors rely on Contractors to travel or incur expenses

related to the performance of audits and other services. Contractors pay for incurred Reimbursable

Expenses by using either a personal credit card or cash. Contractors then submit receipts to request

reimbursement in accordance with internal policies and procedures. Without continued

reimbursement of the Reimbursable Expenses, Contractors relying on these benefits would be

saddled with additional costs, causing personal financial hardship. The Debtors estimate that they

incur approximately $5,000 per month in Reimbursable Expenses, which vary between $0 and

$10,000 per month—with the biggest driver being the number of audits performed, the duration of

each audit, and the travel costs to perform the audit.


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18. As of the Petition Date, the Debtors believe they have approximately $750.90 of

Reimbursable Expenses. While the Debtors ask that reimbursement requests be submitted

promptly, sometimes submission delays occur. Contractors may therefore submit reimbursement

requests for prepetition expenses after the Petition Date. By this Motion, the Debtors request

authorization to pay up to $3,700 incurred on account of the Reimbursable Expenses and to

continue paying the Reimbursable Expenses on a post-petition basis in the ordinary course of

business and consistent with their prepetition practices.

II. Corporate Prepaid Expense Cards

19. The Debtors maintain two prepaid expense cards (together, the “Prepaid Cards”)

utilized by the Debtors to pay expenses in the ordinary course of business. The Prepaid Cards are

provided by PEX. One of the Prepaid Cards is held by Joshua Campbell, the Debtors’ CEO (the

“Campbell Card”), and the other is maintained for the benefit of other Debtor expenses (the

“Company Card”). The Debtors spend approximately $15,000 per month on the Prepaid Cards to

pay for various operating expenses. For example, the Debtors use the Prepaid Cards to pay for

general operating expenses, including, but not limited to, business development expenses, marketing

expenses, Office365 subscription fees, Adobe fees, and Amazon Web Services fees. Certain of these

expenses are on automatic payment terms to avoid business disruption. All of these fees are paid

primarily from the Campbell Card.

20. The Debtors fund the Prepaid Cards on an ad hoc basis from the Debtors’ main

operating bank account. The funds are transferred from the Debtors’ main operating bank account to

an account held at PEX (the “PEX Account”) for the Debtors’ benefit. The Debtors then transfer

funds from the PEX Account to the Prepaid Cards, as needed. As of the Petition Date, the Debtors

maintain approximately $5,600 in the PEX Account, $194.80 on the Campbell Card, and $600 on the

Company Card.


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21. As the Prepaid Cards are not credit cards, the Debtors do not owe any prepetition

amounts on account of the Prepaid Cards. However, the Debtors may have certain prepetition fees

owed to PEX for the use of the Prepaid Cards through PEX’s system. The Debtors estimate that the

amount of these fees is insignificant. By this Motion, the Debtors request authorization to continuing

using the Prepaid Cards on a post-petition basis in the ordinary course of business and consistent

with prepetition practices. Further, the Debtors request the authority to pay any prepetition PEX fees

that are incurred and owed and to continue to pay PEX fees on a post-petition basis in the ordinary

course of business.

Basis for Relief

I. Sufficient Cause Exists To Authorize The Debtors To Honor The Contractor Compensation And Benefit Obligations

A. Certain of the Contractor Compensation and Benefits Are Entitled To Priority Treatment

22. Sections 507(a)(4) and 507(a)(5) of the Bankruptcy Code entitle the majority of the

Contractor Compensation and Benefits to priority treatment. As priority claims, the Debtors are

required to pay these claims in full to confirm a chapter 11 plan.4 To the extent that a Contractor

receives no more than $13,650 on account of claims entitled to priority, the relief sought with respect

to compensation only affects the timing of payments to Contractors and does not have any material

negative impact on recoveries for general unsecured creditors. Indeed, the Debtors submit that

payment of the Contractor Compensation and Benefits at this time enhances value for the benefit of

all interested parties. Finding, attracting, and training new qualified talent would be extremely

difficult and would most likely require higher salaries, guaranteed bonuses, and more comprehensive

compensation packages than are currently provided to Contractors.

4 See U.S.C. § 1129(a)(9)(B) (requiring payment of certain allowed unsecured claims, given priority under Sections 507(a)(4) and 507(a)(5) of the Bankruptcy Code, for (a) contractor fees, salaries or commissions, including vacation, severance, and sick leave pay earned by an individual and (b) contributions to an employee benefit plan).


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II. Payment of the Contractor Compensation and Benefits Is Warranted Under Section 363(b)(1) of the Bankruptcy Code and the Doctrine of Necessity

23. Courts generally acknowledge that it is appropriate to authorize the payment (or other

special treatment) of prepetition obligations in appropriate circumstances.5 In authorizing payments

of certain prepetition obligations, courts have relied on several legal theories, rooted in sections

1107(a), 1108, 363(b), 507, and 105(a) of the Bankruptcy Code.

24. Pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code, 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.”6 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.”7 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.”8 The

CoServ court specifically noted that 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.”9

25. Consistent with a debtor’s fiduciary duties, courts have also authorized payment of

prepetition obligations under Section 363(b) of the Bankruptcy Code where a sound business purpose

5 See, e.g., In re Ionosphere Clubs, Inc., 98 B.R. 175 (Bankr. S.D.N.Y. 1989) (granting authority to pay prepetition Contractor Fees); 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).

6 In re CoServ, L.L.C., 273 B.R. 487, 497 (Bankr. N.D. Tex. 2002).

7 Id.

8 Id.

9 Id.


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exists for doing so.10 Specifically, the business judgment standard requires that a debtor “articulate

some business justification, other than mere appeasement of major creditors.”11

26. In addition, this Court may authorize payment of prepetition claims in appropriate

circumstances based on Section 105(a) of the Bankruptcy Code. Section 105(a) of the Bankruptcy

Code, 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.”12 Under Section 105(a), courts may permit preplan payments of

prepetition obligations when essential to the continued operation of the debtor’s business.

Specifically, this Court may use its power under Section 105(a) to authorize payment of prepetition

obligations pursuant to the “necessity of payment” rule (also referred to as the “doctrine of

necessity”).13

27. The “doctrine of necessity” or the “necessity of payment” rule originated in railway

cases and was first articulated in the Miltenberger v. Logansport, C. & S.W.R. Company case14 The

doctrine was expanded to non-railroad debtors in the mid-century,15 and has long been recognized as

precedent within the Second Circuit.16 Today, the rationale for the necessity of payment rule—the

10 See, e.g., Ionosphere Clubs, 98 B.R. at 175 (discussing prior order authorizing payment of prepetition wage claims pursuant to Section 363(b) and noting that relief is appropriate where payment is 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 Section 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).

11 Ionosphere Clubs, 98 B.R. at 175.

12 11 U.S.C. § 105(a).

13 In re NVR L.P., 147 B.R. 126, 127-28 (Bankr. E.D. Va. 1992).

14 106 U.S. 286 (1882).

15 See Dudley v. Mealey, 147 F.2d 268, 271 (2d Cir. 1945) (holding, in a hotel reorganization case, that the court was not “helpless” to apply the rule to supply creditors of non-railroad debtors where the alternative was the cessation of operations).

16 See Ionosphere Clubs, 98 B.R. at 175-76.


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rehabilitation of a debtor in reorganization cases—is “the paramount policy and goal of Chapter

11.”17

28. Courts also have permitted postpetition payment of prepetition claims pursuant to

Section 105(a) in other situations, such as if nonpayment of a prepetition obligation would trigger a

withholding of goods or services essential to the debtors’ business reorganization plan.18

29. This flexible approach is particularly critical where prepetition creditors, here

Contractors and related third parties, provide vital goods or services to a debtor that would be

unavailable if the debtor did not satisfy its prepetition obligations. For example, in In re Structurlite

Plastics Corporation,19 the bankruptcy court stated that “a bankruptcy court may exercise its equity

powers under §105(a) [of the Bankruptcy Code] to authorize payment of pre-petition claims where

such payment is necessary ‘to permit the greatest likelihood of survival of the debtor and payment of

17 Id.; see also In re Just For Feet, Inc., 242 B.R. 821, 826 (D. Del. 1999) (finding that payment of prepetition claims to certain trade vendors was “essential to the survival of the debtor during the chapter 11 reorganization”); In re Quality Interiors, Inc., 127 B.R. 391, 396 (Bankr. N.D. Ohio 1991) (“[P]ayment by a debtor-in-possession of pre-petition claims outside of a confirmed plan of reorganization is generally prohibited by the Bankruptcy Code”, but “[a] general practice has developed . . . where bankruptcy courts permit the payment of certain pre-petition claims, pursuant to 11 U.S.C. § 105, where the debtor will be unable to reorganize without such payment.”); In re Eagle-Picher Indus., Inc., 124 B.R. 1021, 1023 (Bankr. S.D. Ohio 1991) (approving payment of prepetition unsecured claims of tool makers as “necessary to avert a serious threat to the Chapter 11 process”); Burchinal v. Cent. Wash. Bank (In re Adams Apple, Inc.), 829 F.2d 1484, 1490 (9th Cir. 1987) (recognizing that allowance of “unequal treatment of pre-petition debts when necessary for rehabilitation” is appropriate); Mich. Bureau of Workers’ Disability Comp. v. Chateaugay Corp. (In re Chateaugay Corp.), 80 B.R. 279, 287 (S.D.N.Y. 1987) (authorizing payment of prepetition worker’s compensation claims on grounds that the fundamental purpose of reorganization and equity powers of bankruptcy courts “is to create a flexible mechanism that will permit the greatest likelihood of survival of the debtor and payment of creditors in full or at least proportionately”); 2 COLLIER ON BANKRUPTCY, 105.02[4][a] (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2015) (discussing cases in which courts have relied on the “doctrine of necessity” or the “necessity of payment” rule to pay prepetition claims immediately).

18 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); Ionosphere Clubs, 98 B.R. at 177 (finding that Section 105 empowers bankruptcy courts to authorize payment of prepetition debt when such payment is needed to facilitate the rehabilitation of the debtor). In particular, courts have authorized the payment of non-Insider severance obligations to union employees. See In re Sunedison, Inc., Case No. 16-10992 (SMB) (Bankr. S.D.N.Y. May 20, 2016) (approving Final and Interim Orders permitting Debtors’ paying approximately $1.7 million in prepetition and postpetition severance obligations to 70 former non-insider union employees); In re Verso Corporation, Case No. 16-10163 (KG) (Bankr. D. Del. Feb. 24, 2016) (approving Final Order permitting Debtors’ paying approximately $3.3 million in prepetition and postpetition severance obligations to former non-insider union employees of the Debtors).

19 86 B.R. 922, 931 (Bankr. S.D. Ohio 1988).


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creditors in full or at least proportionately.’”20 The court explained that “a per se rule proscribing the

payment of pre-petition indebtedness may well be too inflexible to permit the effectuation of the

rehabilitative purposes of the Code.”21

30. The Debtors submit that the relief requested in this Motion represents a sound

exercise of the Debtors’ business judgment, is necessary to avoid immediate and irreparable harm to

the Debtors’ estates, and is therefore justified under Sections 105(a) and 363(b) of the Bankruptcy

Code and Bankruptcy Rule 6003. Paying prepetition Contractor Fees, Reimbursable Expenses, and

similar items will benefit the Debtors’ estates and their creditors by allowing the Debtors’ business

operations to continue without interruption. Indeed, the Debtors believe that without the relief

requested herein, Contractors may seek alternative employment opportunities, perhaps with the

Debtors’ competitors. Such a development would deplete the Debtors’ workforce, thereby hindering

the Debtors’ ability to operate their businesses and, likely, diminishing stakeholder confidence in the

Debtors’ ability to successfully consummate a chapter 11 restructuring.

31. The loss of valuable Contractors and the resulting need to recruit new personnel (and

the costs attendant thereto) would be distracting at this crucial time when the Debtors need to focus

on stabilizing their business operations and preparing for a value-maximizing transaction.

Furthermore, the Debtors would be unable to operate without the institutional knowledge of the

Contractors. Accordingly, there can be no doubt that the Debtors must do their utmost to retain their

workforce by, among other things, continuing to honor all Contractor Compensation and Benefits

obligations, including prepetition Contractor Compensation and Benefits.

32. In addition, all of the Contractors rely on the Contractor Compensation and Benefits

to satisfy their daily living expenses. Consequently, Contractors will be exposed to significant

20 Id. (citation omitted).

21 Id. at 932.


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financial difficulties if the Debtors are not permitted to honor their obligations related thereto.

Moreover, failure to satisfy such obligations will jeopardize morale and loyalty at a time when

Contractor support is critical to the Debtors’ businesses. Additionally, as set forth above, Contractor

attrition would cause the Debtors to incur additional expenses to find appropriate and experienced

replacements, if they are able to replace the Contractors at all, severely disrupting the Debtors’

operations at this critical juncture.

33. The importance of a debtor’s workforce to its operations has been repeatedly

recognized by courts, and such courts have granted relief similar to the relief requested herein.22

Accordingly, the Debtors respectfully request that the Court authorize the Debtors to pay any

prepetition amounts accrued and unpaid on account of the Contractor Compensation and Benefits and

to continue the Contractor Compensation and Benefits on a postpetition basis in the ordinary course

of business and consistent with past practices.

Processing of Checks and Electronic Fund Transfers Should Be Authorized

34. The Debtors have sufficient funds to pay any amounts related to the Contractor

Compensation and Benefits in the ordinary course of business. Due to the limited number of

Contractors, the Debtors believe there is minimal risk that checks or wire transfer requests that the

Court has not authorized will be inadvertently made. Thus, the Debtors request that the Court

authorize all applicable financial institutions to receive, process, honor, and pay any and all checks or

wire transfer requests in respect of the Contractor Compensation and Benefits, provided that

22 See, e.g., In re Sabine Oil & Gas Corp., No. 15-11835 (SCC) (Bankr. S.D.N.Y. July 16, 2015); In re Eagle Bulk Shipping Inc., No. 14-12303 (SHL) (Bankr. S.D.N.Y. Sept. 19, 2014); In re Genco Shipping & Trading Ltd., No. 14-11108 (SHL) (Bankr. S.D.N.Y. May 16, 2014); In re Sbarro LLC, No. 14-10557 (MG) (Bankr. S.D.N.Y. Apr. 7, 2014); In re Hawker Beechcraft, Inc., No. 12-11873 (SMB) (Bankr. S.D.N.Y. May 30, 2012); In re Sbarro, Inc., No. 11-11527 (SCC) (Bankr. S.D.N.Y. May 4, 2011). Because of the voluminous nature of the orders cited herein, such orders have not been attached to this Motion. Copies of these orders are available upon request to the Debtors’ proposed counsel.


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sufficient funds are on deposit and standing in the Debtors’ credit in the applicable bank accounts to

cover such payments.

Reservation of Rights

35. Nothing contained herein is intended or shall be construed as: (a) an admission as

to the validity of any prepetition claim against a Debtor entity; (b) a waiver of the Debtors’ or

any other party in interest’s rights to dispute any prepetition claim on any grounds; (c) a promise

or requirement to pay a prepetition claims; (d) an implication or admission that any particular

claim is of a type specified or defined in this motion or any order granting the relief requested by

this motion; (e) a request or authorization to assume any prepetition agreement, contract, or lease

pursuant to section 365 of the Bankruptcy Code; or (f) a waiver of the Debtors’ or any other

party in interest’s rights under the Bankruptcy Code or any other applicable law.

Satisfaction of Bankruptcy Rule 6003(b)

36. Bankruptcy Rule 6003(b) provides that, to the extent relief is necessary to avoid

immediate and irreparable harm, the Court may issue an order granting “a motion to use, sell,

lease, or otherwise incur an obligation regarding property of the estate, including a motion to pay

all or part of a claim that arose before the filing of the petition” before 21 days after filing of the

petition. Fed. R. Bankr. P. 6003(b). As described above and in the First Day Declaration, the

relief requested is necessary for the Debtors to operate their business in the ordinary course and

maximize the value of their estates for the benefit of all stakeholders. Accordingly, the Debtors

believe that the relief requested herein is necessary to avoid immediate and irreparable harm,

and, therefore, Bankruptcy Rule 6003 is satisfied.

Waiver of Bankruptcy Rule 6004(a) and 6004(h)

37. To implement the foregoing successfully, the Debtors request that the Court find

that notice of this Motion is adequate under Bankruptcy Rule 6004(a) under the circumstances,


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and waive the 14-day stay of an order authorizing the use, sale, or lease of property under

Bankruptcy Rule 6004(h). As described above and in the First Day Declaration, the relief

requested herein is necessary to avoid immediate and irreparable harm to the Debtors.

Accordingly, ample cause exists to justify finding that the notice requirements under Bankruptcy

Rule 6004(a) have been satisfied and to grant a waiver of the 14-day stay imposed by

Bankruptcy Rule 6004(h), to the extent such notice requirements and such stay apply.

Notice

38. The Debtors will provide notice of this Motion to: (a) the Office of the United

States Trustee for the Eastern District of Texas; (b) the holders of the 20 largest unsecured claims

against the Debtors (on a consolidated basis); (c) the United States Attorney’s Office for the

Eastern District of Texas; (d) the Internal Revenue Service; (e) counsel to TCA Global Credit

Master Fund, LP; (f) counsel for TCA Special Situations Credit Strategies ICAV, the Debtors’

senior lender; (g) the state attorneys general for states in which the Debtors conduct business;

(h) the Securities and Exchange Commission; (i) the Contractors; and (j) any party that has

requested notice pursuant to Bankruptcy Rule 2002.

39. The Debtors submit that, in light of the nature of the relief requested, no other or

further notice need be given.

No Prior Request

40. No prior motion for the relief requested herein has been made to this or any other

court.


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WHEREFORE, the Debtors respectfully request entry of the Interim Order and Final Order,

substantially in the forms attached hereto as Exhibit A and Exhibit B, respectively, (a) granting the

relief requested herein and (b) granting such other relief as is just and proper.

Dated: October 24, 2019 Respectfully Submitted,

/s/ Marcus A. Helt Marcus A. Helt (TX 24052187)

FOLEY GARDERE Foley Lardner LLP 2021 McKinney Avenue Suite 1600 Dallas, TX 75201 Telephone: (214) 999-3000 Facsimile: (214) 999-4667 Email: [email protected] -and- Jack G. Haake (pro hac pending) FOLEY & LARDNER LLP Washington Harbour 3000 K Street, N.W., Suite 600 Washington, D.C. 20007-5109 Telephone: (202) 295-4085 Facsimile: (202) 672-5399 Email: [email protected] Proposed Counsel for the Debtors and Debtors in Possession


Certificate of Service

I certify that on October 24, 2019, I caused a copy of the foregoing document to be served by the Electronic Case Filing System for the United States Bankruptcy Court for the Eastern District of Texas.

/s/ Marcus A. Helt Marcus A. Helt


EXHIBIT A

(Proposed Interim Order)

Case 19-42886 Doc 9-1 Filed 10/24/19 Entered 10/24/19 21:08:30 Desc Exhibit A - Interim Proposed Order Page 1 of 6



INTERIM ORDER (I) AUTHORIZING THE DEBTORS TO (A) PAY PREPETITION CONTRACTORS FEES, SALARIES, OTHER

COMPENSATION, AND REIMBURSABLE EXPENSES AND (B) CONTINUE PREPAID CARD PROGRAM, AND (II) GRANTING RELATED RELIEF

Upon the motion (the “Motion”)2 of the above-captioned debtors and debtors in possession

(collectively, the “Debtors”) for entry of an interim order (this “Interim Order”), (i) authorizing, but

not directing, the Debtors to (a) pay prepetition Contractor Fees, salaries, other compensation, and

reimbursable expenses, and (b) continue contractor benefits programs in the ordinary course of

business, including payment of certain prepetition obligations related thereto, and (c) granting related

relief; all as more fully set forth in the Motion; and upon the First Day Declaration; and this Court

having jurisdiction over this matter pursuant to 28 U.S.C. §1334; this Court having found that

this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2); and this Court having the authority to

enter a final order consistent with Article III of the United States Constitution; and this Court

having found that venue of this proceeding and the Motion in this district is proper pursuant to

28 U.S.C. §§ 1408 and 1409; and this Court having found that the relief requested in the Motion

is in the best interests of the Debtors’ estates, their creditors, and other parties in interest; and this


2 Capitalized terms used in this Interim Order and not immediately defined have the meanings given to such terms in the Motion or in the First Day Declaration, as applicable.


2

Court having found that the Debtors’ 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 this

Court having reviewed the Motion and having heard the statements in support of the relief

requested therein at a hearing before this Court (the “Hearing”); and this 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 this Court; and

after due deliberation and sufficient cause appearing therefor, it is HEREBY ORDERED THAT:

1. The Motion is GRANTED on an interim basis, as set forth herein.

2. The Debtors are authorized, but not directed, to continue the Contractor

Compensation and Benefits and the Contractor Fees and to pay and honor prepetition amounts

related thereto in an aggregate interim amount not to exceed $34,625.00, in each case in the ordinary

course of business and consistent with their prepetition practices.

3. The Debtors are authorized, but not directed, to pay and honor prepetition amounts

related to Reimbursable Expenses in an aggregate interim amount not to exceed $3,700.00, in each

case in the ordinary course of business and consistent with their prepetition practice.

4. The Debtors are authorized, but not directed, to continue using the Prepaid Cards in

the ordinary course of business and consistent with their prepetition practices. The Debtors are

authorized, but not directed, to pay PEX any amounts and fees owed to PEX pursuant to the use of

the Prepaid Cards in the ordinary course of business and consistent with their prepetition practices.

5. Nothing in this Interim Order shall be construed as approving any transfer

pursuant to 11 U.S.C. § 503(c), and a separate motion will be filed for any request that could fall

within Section 503(c). No payment to any contractor may be made to the extent that it is a

transfer in derogation of section 503(c) of the Bankruptcy Code. This Interim Order does not


3

implicitly or explicitly approve any bonus plan, incentive plan, severance plan or other plan

covered by Section 503(c) of the Bankruptcy Code.

6. Nothing in this Interim Order authorizes the Debtors to accelerate any payments not

otherwise due prior to the date of the Final Hearing (as defined below).

7. Notwithstanding the relief granted herein and any actions taken hereunder, nothing

contained in the Motion or this Interim Order or any payment made pursuant to this Interim Order

shall constitute, nor is it intended to constitute, an admission as to the validity or priority of any claim

or lien against the Debtors, a waiver of the Debtors’ or any other party-in-interest’s rights to

subsequently dispute such claim or lien, or the assumption or adoption of any agreement, contract, or

lease under Section 365 of the Bankruptcy Code.

8. Nothing in the Motion or this Interim Order shall impair the Debtors’ or any other

party-in-interest’s ability to contest the validity or amount of any payment made pursuant to this

Interim Order.

9. Notwithstanding the relief granted herein or any action taken hereunder, nothing

contained in this Interim Order shall create any rights in favor of, or enhance the status of any claim

held by, any Contractor, or other person or entity.

10. The banks and financial institutions on which checks were drawn or electronic

payment requests made in payment of the prepetition obligations approved herein are authorized, but

not directed, to receive, process, honor, and pay all such checks and electronic payment requests

when presented for payment, provided that sufficient funds are on deposit and standing in the

Debtors’ credit in the applicable bank accounts to cover such payments, and all such banks and

financial institutions are authorized to rely on the Debtors’ designation of any particular check or

electronic payment request as approved by this Interim Order without any duty of further inquiry and

without liability for following the Debtors’ instructions.


4

11. The Debtors are authorized to issue postpetition checks, or to affect postpetition fund

transfer requests, in replacement of any checks or fund transfer requests that are dishonored as a

consequence of these chapter 11 cases with respect to prepetition amounts owed in connection with

any Contractor Compensation and Benefits.

12. The requirements of Bankruptcy Rule 6003(b) are satisfied by the contents of the

Motion.

13. Notice of the Motion as provided therein shall be deemed good and sufficient

notice of such Motion and the requirements of Bankruptcy Rule 6004(a) and the Local Rules are

satisfied by such notice.

14. Notwithstanding Bankruptcy Rule 6004(h), the terms and conditions of this

Interim Order are immediately effective and enforceable upon its entry. As soon as reasonably

practicable after entry of this Interim Order, the Debtors shall serve this Interim Order on each of

the Contractors.

15. The Debtors are authorized to take all actions necessary to effectuate the relief

granted in this Interim Order in accordance with the Motion.

16. The final hearing (the “Final Hearing”) on the Motion shall be held on

_____________, 2019, at __:__ _m., prevailing Central Time. Any objections or responses to

entry of the final order shall be filed on or before _________________, 2019 at 4:00 p.m.

(Central time) and served on the following parties: (i) the Debtors, 5700 Granite Parkway, Suite

200, Plano, Texas 75024; (ii) proposed counsel to the Debtors, Foley Gardere, Foley & Lardner

LLP, 2021 McKinney Avenue, Suite 1600, Dallas, Texas 75201, Attn.: Marcus A. Helt; (iii) the

U.S. Trustee; and (iv) counsel to any statutory committee appointed in these chapter 11 cases. In

the event no objections to entry of a Final Order on the Motion are timely received, this Court

may enter such Final Order without a need for a Final Hearing on the Motion.


5

17. This Court retains exclusive jurisdiction with respect to all matters arising from or

related to the implementation, interpretation, and enforcement of this Interim Order.

Dated: __________, 2019

UNITED STATES BANKRUPTCY JUDGE


EXHIBIT B

(Proposed Final Order)

Case 19-42886 Doc 9-2 Filed 10/24/19 Entered 10/24/19 21:08:30 Desc Exhibit B - Proposed Final Order Page 1 of 5



FINAL ORDER (I) AUTHORIZING THE DEBTORS TO (A) PAY PREPETITION CONTRACTORS FEES, SALARIES, OTHER

COMPENSATION, AND REIMBURSABLE EXPENSES AND (B) CONTINUE PREPAID CARD PROGRAM, AND (II) GRANTING RELATED RELIEF

Upon the motion (the “Motion”)2 of the above-captioned debtors and debtors in possession

(collectively, the “Debtors”) for entry of a final order (this “Final Order”), (i) authorizing, but not

directing, the Debtors to (a) pay prepetition contractor fees, salaries, other compensation, and

reimbursable expenses, and (b) continue contractor benefits programs in the ordinary course of

business, including payment of certain prepetition obligations related thereto, and (ii) granting related

relief; all as more fully set forth in the Motion; and upon the First Day Declaration; and this Court

having jurisdiction over this matter pursuant to 28 U.S.C. §1334; this Court having found that

this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2); and this Court having the authority to

enter a final order consistent with Article III of the United States Constitution; and this Court

having found that venue of this proceeding and the Motion in this district is proper pursuant to

28 U.S.C. §§ 1408 and 1409; and this Court having found that the relief requested in the Motion

is in the best interests of the Debtors’ estates, their creditors, and other parties in interest; and this


2 Capitalized terms used in this Final Order and not immediately defined have the meanings given to such terms in the Motion or in the First Day Declaration, as applicable.


2

Court having found that the Debtors’ 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 this

Court having reviewed the Motion and having heard the statements in support of the relief

requested therein at a hearing before this Court (the “Hearing”); and this 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 this Court; and

after due deliberation and sufficient cause appearing therefor, it is HEREBY ORDERED THAT:

1. The Motion is GRANTED on a final basis, as set forth herein.

2. The Debtors are authorized, but not directed, to continue and modify the Contractor

Compensation and Benefits on a postpetition basis, and to pay and honor prepetition amounts related

thereto, in each case in the ordinary course of business, and consistent with the Debtors’ prepetition

policies and practices.

3. The Debtors are authorized, but not directed, to pay and honor prepetition amounts

related to Reimbursable Expenses, in each case in the ordinary course of business and consistent with

their prepetition practice.

4. The Debtors are authorized, but not directed, to continue using the Prepaid Cards in

ordinary course of business and consistent with their prepetition practice. The Debtors are

authorized, but not directed, to pay PEX any amounts and fees owed to PEX pursuant to the use of

the Prepaid Cards in the ordinary course of business and consistent with their prepetition practice.

5. Nothing in this Final Order shall be construed as approving any transfer pursuant

to 11 U.S.C. § 503(c), and a separate motion will be filed for any request that could fall within

Section 503(c). No payment to any contractor may be made to the extent that it is a transfer in

derogation of section 503(c) of the Bankruptcy Code. This Final Order does not implicitly or


3

explicitly approve any bonus plan, incentive plan, severance plan or other plan covered by

Section 503(c) of the Bankruptcy Code.

6. Notwithstanding the relief granted herein and any actions taken hereunder, nothing

contained in the Motion or this Final Order or any payment made pursuant to this Final Order shall

constitute, nor is it intended to constitute, an admission as to the validity or priority of any claim or

lien against the Debtors, a waiver of the Debtors’ or any other party-in-interest’s rights to

subsequently dispute such claim or lien, or the assumption or adoption of any agreement, contract, or

lease under Section 365 of the Bankruptcy Code.

7. Nothing in the Motion or this Final Order shall impair the Debtors’ or any other

party-in-interests’ ability to contest the validity or amount of any payment made pursuant to this

Final Order.

8. Notwithstanding the relief granted herein or any action taken hereunder, nothing

contained in this Final Order shall create any rights in favor of, or enhance the status of any claim

held by, any Contractor, or other person or entity.

9. The banks and financial institutions on which checks were drawn or electronic

payment requests made in payment of the prepetition obligations approved herein are authorized, but

not directed, to receive, process, honor, and pay all such checks and electronic payment requests

when presented for payment, provided that sufficient funds are on deposit and standing in the

Debtors’ credit in the applicable bank accounts to cover such payments, and all such banks and

financial institutions are authorized to rely on the Debtors’ designation of any particular check or

electronic payment request as approved by this Final Order without any duty of further inquiry and

without liability for following the Debtors’ instructions.

10. The Debtors are authorized to issue postpetition checks, or to affect postpetition fund

transfer requests, in replacement of any checks or fund transfer requests that are dishonored as a


4

consequence of these chapter 11 cases with respect to prepetition amounts owed in connection with

any Contractor Compensation and Benefits.

11. The requirements of Bankruptcy Rule 6003(b) are satisfied by the contents of the

Motion.

12. Notice of the Motion as provided therein shall be deemed good and sufficient

notice of such Motion and the requirements of Bankruptcy Rule 6004(a) and the Local Rules are

satisfied by such notice.

13. Notwithstanding Bankruptcy Rule 6004(h), the terms and conditions of this Final

Order are immediately effective and enforceable upon its entry.

14. The Debtors are authorized to take all actions necessary to effectuate the relief

granted in this Final Order in accordance with the Motion.

15. This Court retains exclusive jurisdiction with respect to all matters arising from or

related to the implementation, interpretation, and enforcement of this Final Order.

Dated: __________, 2019

UNITED STATES BANKRUPTCY JUDGE


Documents

Marcus A. Helt (TX 24052187) FOLEY GARDERE …strettodocs.s3.amazonaws.com/files/19c21f14-f4f1-4113-89...PREPAID CARD PROGRAM, AND (II) GRANTING RELATED RELIEF 1 The Debtors in the