Hostess Does Not Liquidate, Set to Mediate With Union

[authors: Jeffrey H. Taub]

Reports of Twinkie the Kid’s death have been exaggerated. Despite widespread mainstream media reports of Hostess’ impending liquidation, the court has not yet approved liquidation. To the contrary, on November 19, 2012, after a brief hearing on Hostess’s emergency motions to begin the wind down of its operations, Hostess and its two main unions agreed to attend a confidential mediation session. At the mediation, Bankruptcy Judge Robert Drain intends to determine if the parties can avoid liquidation.

The mediation marks the latest turn in the years long saga. Restructuring Review has covered Hostess’ negotiations with its unions here, here, and here.

Proposed Liquidation

Last week, Hostess filed motions seeking court authorization to begin liquidating its assets in an orderly fashion by selling groups of related assets that could be operated on a going concern basis. Hostess’s motions are available here and here.

Hostess intends to sell groups of related assets that can be operated on a going concern basis, and anticipates completing the sale of substantially all of its assets in approximately one year. The motion includes little detail on the substance of the liquidation process – a point raised by the union in opposition to the proposed sale.  Hostess initially intends to continue employing approximately 3200 employees. Within four months, Hostess anticipates that it will only require approximately 200 employees. The anticipated cost of the liquidation is approximately $17.58 million.

Hostess also requested implementation of an employee retention plan that would pay up to $6.1 million in bonuses to certain management employees if the managers remain employed with Hostess during the liquidation or meet various performance metrics. Specifically, non-senior managers would receive a bonus for staying with Hostess through the liquidation and senior managers would receive performance targeted bonuses based on the successful completion of various metrics for the manager’s group and for spending less than the budgeted amount during the liquidation.

Hostess is also requesting the bankruptcy court’s approval to unilaterally modify its CBAs in a manner that would allow Hostess to implement the liquidation. Specifically, Hostess is requesting authorization to:

  • Stop making payments to multi-employer pension plans;
  • Ignore seniority and other job classification restrictions that limit Hostess’s ability to assign work to specific employees or to hire temporary employees;
  • Pay the remaining employees in accordance with the terms of the last best and final offers; and
  • Prohibit the remaining employees from using accrued vacation, sick days or personal holidays.

The Latest Developments

At today’s hearing, Judge Drain noted that the Bakery, Confectionary, Tobacco and Grain Workers International Union had chosen an “unusual, perhaps illogical, odd approach” by choosing not to object to Hostess’s motions to reject and modify its CBAs and initiating a strike after Hostess implemented the changes to the CBAs.

The court noted that although it did not have jurisdiction to enjoin a strike, a debtor could choose to bring claims for damages against a union that initiates an improper strike. Because the Bakers’ Union’s actions would likely result in the termination of 6000 of its employees and lead to lower recoveries for all of Hostess’s creditors, the propriety of the strike would likely end up in litigation. The court noted that although it had not authorized depositions of the Bakers’ Union principals earlier in the case, discovery in a potential litigation could encompass whether the Bakers’ Union had engaged in discussions with Hostess’s competitors. The court therefore afforded the parties one last chance to work out their differences in private.

After a brief adjournment, the court announced that the parties had agreed to participate in a mediation session, presided over by the judge, on November 20, 2012. Judge Drain noted that it was unusual for a judge hearing a case to simultaneously act as a mediator, however, given the looming loss of 18,000 jobs and the time constraints, he found it appropriate under the circumstances.

Published In: Alternative Dispute Resolution (ADR) Updates, Bankruptcy Updates, Business Organization Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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