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Avaya Inc. and its creditors convinced a federal bankruptcy judge in New York that the monthly pension benefits of a retiree’s widow aren’t protected by the bankruptcy code ( In re Avaya Inc. , 2017 BL 327683, Bankr. S.D.N.Y., No. 17-10089-SMB, 9/18/17 ).
The survivor benefit—$1,433 per month—received by the widow is an unsecured debt and not a “retiree benefit” as defined by the code, Judge Stuart M. Bernstein of the U.S. Bankruptcy Court for the Southern District of New York held Sept. 18. The benefit is based on the widow’s right to receive her late husband’s deferred compensation, and Avaya’s obligation to make those payments doesn’t convert a pension payment into a “retiree benefit” protected by the code, he said.
Under the code, retiree benefits—which include reimbursement for medical care payments, as well as benefits in the event of sickness, disability, or death—are afforded significant protections. However, pension benefits aren’t protected.
The decision could be a blow for other surviving spouses of Avaya retirees because the judge declined to appoint an official committee to represent their interests.
In her request, the widow argued that her survivor benefit was a “retiree benefit” under the code because her right to receive it was triggered by the death of her husband. Avaya and its creditors disagreed, arguing that the survivor benefit couldn’t be a “benefit in the event of death” because a retiree’s death doesn’t give rise to the benefit; it merely transfers an existing pension benefit to the surviving spouse.
Ruling against the widow, the judge held that her pension benefit wasn’t transformed into a retiree benefit under the code after her husband’s death.
The controversy stems from Avaya’s decision to suspend all payments under its supplemental plan after it filed for bankruptcy earlier this year. At the time, Avaya listed a single $90.21 million unsecured non-priority claim on account of unpaid amounts under the plan. Under the currently proposed reorganization plan, Avaya estimates it will distribute nearly 19.7 percent of that amount to unsecured creditors on account of the allowed amount of their claims.
The suspension of payments has triggered other participants to file letters asking the court to protect their pension benefits. Some of the participants who filed the letters took issue with Avaya’s request seeking authorization to pay up to $3.7 million in executive bonuses while the company suspended their non-qualified pension payments.
California-based Avaya is a multinational technology company that provides unified communications products and services, including telephone, internet, wireless data, and real-time video collaboration.
Kirkland & Ellis LLP represents Avaya. Storch Amini PC represents the widow.
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