Exculpations, Bonuses, and “Blank Check” Disclosures
According to the objection, Azul’s disclosure statement fails to justify the breadth of its exculpations, which improperly shield parties that aren’t estate fiduciaries or that acted “under advice of counsel.” The filing said this approach could insulate misconduct from accountability.
Further scrutiny fell on the airline’s management incentive plan, which reserves 7% of the reorganized company’s equity for executive compensation. The U.S. Trustee said this violates Bankruptcy Code restrictions against insider incentive payments unless a company can prove they’re essential — evidence Azul has not provided.
The Trustee’s Office accused the airline of effectively asking the court to sign a blank check, with limited transparency on feasibility, asset valuation, or debt-repayment capabilities.
A $3 Billion Struggle for Survival
Azul filed for Chapter 11 bankruptcy in May, burdened by $3 billion in debt tied to the COVID-19 crisis, supply chain disruptions, and macroeconomic turbulence in Latin America. Its restructuring plan — unveiled last month — would swap first- and second-lien debt for equity, a move the airline claims would stabilize its finances and position it for recovery.
However, the Trustee’s objection signals that the path forward may be far rockier than Azul anticipated. If the judge agrees with the Trustee’s arguments, Azul could be forced to rewrite or withdraw its plan, delaying its restructuring and complicating efforts to reassure investors and creditors.
