Analysis of Judge's Approval for Voyager Digital's Key Employee Retention Awards

Voyager Digital's KERP awards reflect 22.5% of the participating employee's annual salary. 55.6% of participating employees' KERP awards (or 12.5% of annual salary) will be paid immediately. The terms include a clawback clause that employees must remain with the firm through emergence from Chapter 11. The remaining 44.4% paid at the earlier of (1) 12 months after the KERP effective date or (2) 90 days following emergence. 

KERP is justified by Section 503(c)(3) Bankruptcy Code enabling the debtor (in this case Voyager) to incentivize mission-critical employees to stay through the navigation of the Chapter 11 proceedings. If there was no KERP in place, key employees may leave, which would further hamper Voyager's position. The debtor can argue that key employee retention is value-maximizing. That being said, creditors can take the opposite end of the argument with the view that the additional cash expenditures inherently reduce any remaining solvency and, thus, their recovery. KERP no longer becomes relevant in a liquidation or Chapter 7 situation. While Chapter 7 would not require the cash KERP payouts, generally speaking, a fire sale or asset liquidation generates a meaningful reduction in proceeds because buyers will demand a haircut (or lower than market value) for the assets.