The hurdles for KERP programs have been raised too high, causing debtors to lose critical personnel to the detriment of post-petition operations, say Frost Brown Todd’s Ronald Gold and Doug Lutz in our series of chats with high-profile bankruptcy lawyers.

Q. What’s the most challenging bankruptcy you’ve worked on, and why?

A. In 2002, we filed Chapter 11 cases for Horizon Natural Resources and 83 of its wholly owned subsidiaries in the United States Bankruptcy Court for the Eastern District of Kentucky. Earlier in 2002, HNR had confirmed a pre-packaged plan. And less than seven months later, the coal market took a dramatic turn that required a new restructuring.

The Chapter 11 case was groundbreaking in that the HNR debtors were able to bring together a number of constituencies – each with dramatically different issues and concerns – for a successful plan. The HNR debtors were faced with significant 1113 and 1114 issues, Coal Act issues, three levels of secured debt, bonding company concerns, state reclamation and environmental issues and operational issues.

The result of the Chapter 11 cases was the sale of significant operations as going concern entities owned and controlled by Wilbur Ross for in excess of $1 billion.

Q. Which aspects of bankruptcy law do you think are in need of reform, and why?

A. The BAPCA created a new category of administrative claims – for goods shipped in the 20 days prior to a filing, i.e., the section 503 (b)(9) claims.

This provision of the code gives little regard to the unexpected bankruptcy filing and unduly penalizes a Chapter 11 debtor by impacting the claims that must be paid in order to confirm a plan of reorganization.

The purpose of administrative claims is to protect those creditors that provide a direct and substantial benefit to the estate. The 503(b)(9) claims do not fall within that clear policy.

Also, Congress should re-evaluate what is necessary for allowance of a KERP program. The hurdles have been raised too high and debtors are losing critical personnel that are impacting post petition operations.

Q. What’s your response to complaints from labor unions, U.S. trustees and others about “excessive” legal fees in bankruptcies?

A. We think that bankruptcy courts have done a good job of evaluating professional fees in light of the complexities and demands placed upon professionals in Chapter 11 cases. The issues raised by the unions are self-serving and are aimed to protect their interests and attack those who are averse to the unions.

Q. How has your firm responded to the onslaught of bankruptcies among mortgage lenders?

A. Our practice focuses on corporate restructurings. We expect the effect of the turmoil in the mortgage industry to impact our regional economy and ultimately affect corporate lending in our region. We are preparing for an increase in corporate restructuring and liquidations because of the tightening of the credit market. Because of this, we are proactive with many of our clients, anticipating the needs for obtaining new financing and equity commitments well in advance.

Q. Beyond mortgage lenders, where do you see the next wave of bankruptcies?

A. Based upon our practice region – Ohio, Kentucky, Indiana, Tennessee and West Virginia – we see an increased number of coal and energy companies experiencing significant financial and operational difficulties. As a result, we expect a new wave of filings in these industries in 2008. We are actively involved in the coal Chapter 11 cases and restructurings in each of our offices.

Q. What advice would you give to a young lawyer who’s interested in getting into bankruptcy law?

A. For those young lawyers who are entering a corporate litigation practice, a restructuring and bankruptcy practice affords the best of both practices. It affords attorneys a unique opportunity to become involved in the business restructuring of a business, to help implement a plan. The issues in each restructuring are unique and present different challenges. Finally, each case presents the opportunity to learn about a new industry and business.

Q. I’m a big debtor-in-possession (or creditor). Why should I hire your firm?

A. We represent Chapter 11 debtors in our region – Ohio, Kentucky, Indiana, Tennessee and West Virginia – every day. We know and are respected by the bankruptcy judges, financial institutions and restructuring professionals in our region.

We have a long history of success in Chapter 11 cases and have been involved in many complex cases. We approach each Chapter 11 case as a business matter and work with the debtor and its principals on a business solution. Our goal in each case is to obtain a consensual Chapter 11 plan that is supported by the debtor and the major creditor constituencies.

If necessary, we will litigate issues that are critical to the debtor and the bankruptcy estate. We begin each engagement with the same general statement - what is the ultimate goal of the company? We will work with you to help structure the solution.