Creditors Demand That Tribune Employees Payback Money To Bankruptcy Estate

A few years before its bankruptcy filing, the Tribune Co. paid hundreds of employees for their shares of stock and other compensation, including bonuses as part of the now maligned $8.2 billion leveraged buyout orchestrated by Sam Zell.  The creditors in the Tribune bankruptcy are now filing legal claims against 200 current and former Tribune employees saying that the payments were illegal transfers of assets.

Former top executives are targeted, including former Chairman and CEO Dennis FitzSimons, from whom creditors are seeking to be repaid $28.7 million. Of those being sued, nine received more than $5 million and 12 received more than $1 million, according to the Tribune… But many of those being sued are managers who were not involved in the buyout deal, and are surprised to be targeted, the Tribune said.

According to the bankruptcy law, debtors are not allowed to transfer assets illegally before filing bankruptcy.  Creditors in the Tribune bankruptcy have contended that Tribune knew that the Zell buyout would send the company into bankruptcy and because of this fact those payments to employees were fraudulent.  If the bankruptcy court agrees that the asset transfers to employees were fraudulent, employees named in the lawsuit will be forced to repay the money to the bankruptcy estate so that it can be distributed to creditors.

But even if the bankruptcy court decides that the transfers were in fact fraudulent, employees who said they were not involved in the buyout will have the opportunity to challenge the ruling.  And whether or not the bankruptcy judge decides in favor of the creditors, the Tribune bankruptcy litigation seems poised to drag on for months, if not years.