A government-appointed trustee in the Petersen Health Care bankruptcy case has asked a federal judge to block the company from issuing hundreds of thousands of dollars in incentive payments to “insiders” who include the skilled nursing chain’s regional directors.
Petersen filed for bankruptcy in March, shortly after a representative for the operator of nearly 100 facilities in the Midwest told McKnight’s Long-Term Care News that it had no intention of going out of business despite mounting financial challenges.
The company has kept its operations running during the legal saga — with some facilities in receivership — and took out a fresh $45 million bankruptcy loan to cover the cost of operations in mid-May.
The case is close to its resolution, with the judge last month authorizing sales of two groups of facilities to Petersen Acquisition LLC and HP Developers LLC. Also last month, the judge set stipulations for Petersen and two of the lenders it owes to allow a new receiver for additional locations.
It was following those two major developments that Petersen Health filed a motion to pay about $1.3 million in bonus payments to both insiders and non-insiders at the original company.
The company bills those payments under the ​​bankruptcy code’s Key Employee Incentive Plan and Key Employee Retention Plan as critical to seeing the sales to completion and maintaining regulatory requirements during what could be a two-month transition.
But the court’s trustee last week objected to the move, saying because the proposed metrics are “vague and ambiguous, are based in part on past events, and/or are merely part of the employees’ normal job responsibilities and duties,” that the incentive payments are “impermissible insider retention bonus, and approval … should be denied.”
Trustee Andrew R. Vara also noted in his formal objection that Petersen Health’s motion expressed concern about patient impact if would-be bonus recipients leave, they are not direct caregivers but rather “executives (insiders) and high level managers.”
Payments under the KEIP plan would total about $560,000 for four employees, while the KERP plan splits more than $730,000 among 26 “non-insider essential employees,” who Vara says are regional directors who would each receive an amount equal to about 28% of their salary.
Acting as a trustee, Vara is essentially an administrator who monitors Petersen Health’s holdings during the proceedings. An official committee of unsecured creditors has also objected to the company’s plan.
The judge has scheduled a hearing on the issue for Wednesday morning.
Attorneys for Petersen Health did not respond to McKnight’s request for comment Monday.
