1006-00002 · Crestline Packaging Solutions LLC · Petition and First Day

motion-employee-wages-benefits.docx DOCUMENT Finance & Banking

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UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

^1 The Debtors in these Chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, are: Crestline Packaging Solutions LLC (EIN: xx-xxx4817) and CPS Holdings Inc. (EIN: xx-xxx9203). The location of the Debtors' corporate headquarters and the service address for the Debtors in these Chapter 11 cases is 4710 Industrial Corridor Drive, Akron, OH 44308.

DEBTORS' MOTION FOR ENTRY OF AN ORDER AUTHORIZING, BUT NOT DIRECTING, THE DEBTORS TO (I) PAY PREPETITION EMPLOYEE WAGES, SALARIES, AND COMMISSIONS, (II) CONTINUE EMPLOYEE BENEFITS PROGRAMS, (III) PAY PREPETITION WORKERS' COMPENSATION OBLIGATIONS, (IV) REIMBURSE EMPLOYEE BUSINESS EXPENSES, AND (V) PAY ALL RELATED PAYROLL TAXES AND WITHHOLDINGS

Crestline Packaging Solutions LLC and CPS Holdings Inc., as debtors and debtors in possession in the above-captioned Chapter 11 cases (collectively, the "Debtors"), hereby move this Court (the "Motion") for entry of an order, substantially in the form attached hereto as Exhibit A (the "Proposed Order"), authorizing, but not directing, the Debtors to (i) pay prepetition employee wages, salaries, and commissions, (ii) continue employee benefits programs and pay prepetition amounts owed in connection therewith, (iii) pay prepetition workers' compensation obligations, (iv) reimburse prepetition employee business expenses, and (v) pay all related payroll taxes and withholdings. In support of this Motion, the Debtors respectfully represent as follows:

I. PRELIMINARY STATEMENT

1. On June 20, 2022 (the "Petition Date"), the Debtors filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Northern District of Ohio (this "Court"). The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No request has been made for the appointment of a trustee or examiner, and no official committee of unsecured creditors has yet been appointed.

2. The Debtors are leading manufacturers of specialty chemical packaging and industrial containment products, employing approximately 1,420 employees (the "Employees") across four manufacturing facilities located in the states of Ohio, Indiana, and Louisiana, as well as the Debtors' corporate headquarters in Akron, Ohio. The Employees perform critical functions across every aspect of the Debtors' manufacturing operations, including the production of high-density polyethylene ("HDPE") drums, intermediate bulk containers ("IBCs"), steel pails, and specialty containment vessels that serve customers in the chemical, petrochemical, and agricultural sectors.

3. The Debtors' Employees are the lifeblood of the Debtors' enterprise. They operate complex extrusion and molding equipment, maintain compliance with rigorous Department of Transportation ("DOT") and Environmental Protection Agency ("EPA") containment and safety standards, and carry out the daily manufacturing, quality assurance, logistics, and administrative functions upon which the Debtors' business depends. Many of the Debtors' Employees possess specialized technical skills and institutional knowledge that would be extremely difficult—and in some cases impossible—to replace in the current labor market, particularly in the manufacturing and industrial sectors in which the Debtors operate.

4. By this Motion, the Debtors seek authority to pay prepetition obligations owed to their Employees, including (a) accrued but unpaid wages, salaries, and commissions, (b) accrued but unpaid employer contributions and premium payments for health and welfare benefit programs, (c) accrued but unpaid workers' compensation premium obligations and self-insured retention payments, (d) accrued but unpaid reimbursable employee business expenses, (e) accrued but unremitted payroll tax withholdings and employer payroll tax obligations, and (f) obligations arising under paid time off, vacation, and sick leave policies (collectively, the "Employee Obligations"). The Debtors estimate that the aggregate amount of prepetition Employee Obligations for which relief is sought herein is approximately $5.0 million.

5. The prompt payment of the Employee Obligations is essential to the Debtors' continued operations and their ability to preserve going-concern value for the benefit of all stakeholders. Without such payment, the Debtors face a serious and immediate risk that Employees will abandon their positions and seek employment elsewhere, resulting in critical disruptions to manufacturing operations at all four of the Debtors' production facilities. Such disruptions would impair the Debtors' ability to fulfill existing customer orders, maintain regulatory compliance, and preserve the value of their estates—consequences that would be devastating not only to the Employees themselves but to all parties in interest.

6. The Debtors' ability to maintain their workforce intact is also essential to the successful consummation of the prepackaged plan of reorganization (the "Prepackaged Plan") that the Debtors intend to file in short order. The Prepackaged Plan, which has been developed in consultation with the Debtors' principal secured creditor constituencies, contemplates the Debtors' emergence from Chapter 11 as going concerns with their operations substantially intact. The loss of key Employees during the pendency of these cases would fundamentally undermine that objective.

7. This Motion is supported by the Declaration of Dana Kowalski, Chief Financial Officer of Crestline Packaging Solutions LLC (the "Kowalski Declaration"), filed contemporaneously herewith in support of the Debtors' first day motions, which provides additional detail concerning the Debtors' business operations, workforce, benefit programs, and the necessity for the relief requested herein.

II. JURISDICTION AND VENUE

8. This Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and 1334 and the General Order of Reference entered by the United States District Court for the Northern District of Ohio dated April 4, 2012 (the "General Order of Reference"), referring all proceedings arising under Title 11, or arising in or related to a case under Title 11, to this Court.

9. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). The Debtors confirm their consent, pursuant to Rule 7008 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), to the entry of a final order by this Court in connection with this Motion to the extent that it is later determined that this Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith consistent with Article III of the United States Constitution. See Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665 (2015).

10. Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409. The Debtors' corporate headquarters and principal place of business are located in Akron, Ohio, which is within the Northern District of Ohio, Eastern Division.

11. The statutory bases for the relief requested herein are sections 105(a), 363(b), 507(a)(4), 507(a)(5), and 541 of the Bankruptcy Code, as well as Bankruptcy Rules 6003 and 6004 and the applicable Local Rules of this Court.

III. BACKGROUND

A. General Background

12. Crestline Packaging Solutions LLC ("Crestline") is an Ohio limited liability company with its corporate headquarters and principal place of business located at 4710 Industrial Corridor Drive, Akron, Ohio 44308. CPS Holdings Inc. ("CPS Holdings") is a Delaware corporation that serves as the direct parent entity of Crestline, with its registered agent located at 1209 Orange Street, Wilmington, Delaware 19801, c/o National Corporate Services, Inc. CPS Holdings does not conduct any independent business operations and exists solely as a holding company.

13. Crestline was formed in 2007 and quickly established itself as a significant participant in the specialty chemical packaging and industrial containment products market. In October 2017, Crestline was acquired in a leveraged buyout by Thornfield Capital Partners LP ("Thornfield"), a middle-market private equity firm, for an aggregate enterprise value of approximately $410 million. In connection with the acquisition, Thornfield caused CPS Holdings to be formed as the parent holding company through which it holds its equity interest in Crestline.

14. The Debtors are engaged in the manufacture and distribution of specialty chemical packaging and industrial containment products. The Debtors' core product lines include HDPE drums, IBCs, steel pails, and specialty containment vessels, all of which are designed to meet stringent DOT and EPA regulatory standards for the safe transportation and storage of chemicals, petrochemicals, and agricultural products. The Debtors' products serve a diverse base of customers across the chemical, petrochemical, and agricultural sectors, including a number of Fortune 500 companies.

15. In fiscal year 2021 ("FY2021"), the Debtors generated total revenue of approximately $312.6 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $38.4 million. The Debtors' financial performance deteriorated significantly during FY2021, with revenue declining approximately 18% from FY2020 to FY2021. This decline was attributable primarily to dramatic increases in the cost of high-density polyethylene resin—a key raw material input—as well as broader supply chain disruptions that impaired the Debtors' ability to pass through cost increases to customers on a timely basis. These trends continued into FY2022, with trailing twelve-month ("TTM") EBITDA as of the first quarter of 2022 ("Q1 2022") declining further to approximately $29.1 million, reflecting continued margin compression and an inability to fully offset rising input costs.

16. As of the Petition Date, the Debtors' total funded indebtedness was approximately $247.3 million, consisting of the following: (a) a revolving credit facility with an aggregate commitment of $50.0 million, of which approximately $32.6 million was drawn as of the Petition Date; (b) a first lien term loan in the original principal amount of $175.0 million, with an outstanding balance of approximately $158.7 million as of the Petition Date; and (c) second lien notes in the aggregate principal amount of $56.0 million. The revolving credit facility and the first lien term loan are governed by that certain First Lien Credit Agreement, dated as of October 13, 2017, by and among the Debtors, Ridgeline National Bank, N.A., as administrative agent (the "First Lien Agent"), and the lenders party thereto (as amended, the "First Lien Credit Agreement"). The second lien notes are governed by that certain Second Lien Notes Indenture, dated as of October 13, 2017, by and among CPS Holdings, Crestline, and Continental Fiduciary Trust Company, as indenture trustee (the "Second Lien Indenture").

17. The Debtors' financial performance decline and resulting liquidity constraints led to a breach of the maximum leverage ratio covenant contained in the First Lien Credit Agreement, which required the Debtors to maintain a ratio of Total Net Debt to EBITDA (as defined therein) not to exceed 5.75x. As of Q1 2022, the Debtors' actual leverage ratio was approximately 8.50x, materially exceeding the covenant threshold. As a consequence, on April 22, 2022, Ridgeline National Bank, N.A., in its capacity as the First Lien Agent, delivered a Notice of Default to the Debtors pursuant to the terms of the First Lien Credit Agreement. Following intensive negotiations among the Debtors, Thornfield, and the Debtors' principal creditor constituencies, the Debtors and the First Lien Agent entered into a Forbearance Agreement on May 18, 2022 (the "Forbearance Agreement"), pursuant to which the First Lien Agent and the requisite lenders agreed to forbear from exercising remedies through June 30, 2022, conditioned upon, among other things, the Debtors' filing of the instant Chapter 11 cases on or before June 20, 2022.

18. A more detailed description of the Debtors' business, corporate structure, capital structure, prepetition financing arrangements, and the events leading to the commencement of these Chapter 11 cases is set forth in the Kowalski Declaration, which is incorporated herein by reference.

B. The Debtors' Employees and Workforce

19. As of the Petition Date, the Debtors employ approximately 1,420 Employees across their four manufacturing facilities and corporate headquarters. The Debtors' workforce is distributed among the following locations:

(a) Akron Headquarters and Plant 1 (4710 Industrial Corridor Drive, Akron, Ohio 44308): Approximately 480 Employees, comprising the Debtors' corporate headquarters operations (including executive management, finance, accounting, human resources, legal, IT, and corporate development functions) as well as the Debtors' HDPE drum manufacturing plant, which is the largest of the Debtors' four production facilities by headcount and production volume.

(b) Plant 2 (2255 Commerce Parkway, Evansville, Indiana 47725): Approximately 390 Employees, primarily engaged in the manufacture of IBCs and steel pails. Plant 2 is a key production facility for the Debtors' intermediate bulk container product line, which represents a significant and growing portion of the Debtors' revenue.

(c) Plant 3 (8100 River Road, Baton Rouge, Louisiana 70820): Approximately 310 Employees, primarily engaged in the manufacture of specialty containment vessels. Plant 3 serves the Debtors' petrochemical and chemical customers concentrated in the Gulf Coast region, and its proximity to major petrochemical complexes is strategically important to the Debtors' operations.

(d) Plant 4 (1480 State Route 59, Ravenna, Ohio 44266): Approximately 240 Employees, primarily engaged in extrusion and secondary processing operations, including the production of HDPE sheets and liners used in the Debtors' drum and IBC manufacturing processes.

20. The Debtors' workforce spans a diverse range of functions and skill sets essential to the continued operation of the Debtors' business. The Employees include salaried management and administrative personnel, hourly manufacturing and production workers, quality control and safety personnel, maintenance technicians, logistics and warehouse staff, and sales and customer service professionals. The Debtors' senior management team includes Marcus J. Reinholdt, Chief Executive Officer; Dana Kowalski, Chief Financial Officer; and Preston Yee, General Counsel.

21. Many of the Debtors' Employees possess specialized technical skills and knowledge that are directly critical to the Debtors' manufacturing operations. The Debtors' production processes require expertise in chemical packaging manufacturing, extrusion and blow molding processes, quality assurance testing, and compliance with the complex web of DOT and EPA regulatory requirements governing the design, manufacture, testing, and certification of chemical containment and transportation packaging. These skills are highly specialized and are developed over years of training and on-the-job experience. In the current labor market—which remains exceptionally tight in the manufacturing sector—replacing Employees with equivalent skills and experience would be extremely difficult, time-consuming, and costly.

22. Any significant disruption to the Debtors' workforce would have immediate and severe consequences for the Debtors' business. The Debtors operate their four manufacturing facilities on a continuous or near-continuous basis to fulfill customer orders and maintain production schedules. The loss of even a modest number of key Employees—whether production operators, maintenance technicians, quality assurance specialists, or supervisory personnel—could force the Debtors to curtail or cease production at one or more facilities, resulting in the inability to fulfill customer orders, breach of customer contracts, loss of customer relationships, and a corresponding erosion of the going-concern value of the Debtors' estates. The Debtors submit that the preservation of their workforce is, accordingly, a matter of the highest priority in these Chapter 11 cases.

IV. RELIEF REQUESTED

23. By this Motion, the Debtors request entry of an order authorizing, but not directing, the Debtors to pay and honor the following categories of prepetition Employee Obligations in the ordinary course of business, as described in greater detail below.

A. Prepetition Wages, Salaries, and Commissions

24. As of the Petition Date, the Debtors estimate that they owe approximately $3.2 million in accrued but unpaid wages, salaries, and commissions to their Employees for work performed during the prepetition period (the "Prepetition Wages"). The Debtors maintain a bi-weekly payroll cycle for all Employees, with payroll processed and disbursed through the Debtors' payroll system. The Petition Date of June 20, 2022, falls between payroll periods, with the result that Employees have earned but not yet received compensation for work performed during the current pay period.

25. The Prepetition Wages include base wages for hourly Employees, base salaries for salaried Employees, and accrued sales commissions for Employees in the Debtors' sales organization whose compensation includes a commission component. The Debtors' hourly Employees constitute the substantial majority of the Debtors' workforce and are compensated on an hourly basis at rates ranging from approximately $16.50 per hour for entry-level production workers to approximately $38.00 per hour for senior maintenance technicians and skilled operators. Salaried Employees receive bi-weekly salary payments, and commission-eligible Employees receive commissions on a monthly basis (with the most recent commission cycle ending prior to the Petition Date but remaining unpaid as of that date).

26. The Debtors' Employees depend on the timely and regular receipt of their wages and salaries to meet their daily living expenses, including housing, food, transportation, childcare, and other essential needs. Many of the Debtors' Employees—particularly the hourly production workers who constitute the backbone of the Debtors' manufacturing operations—live paycheck to paycheck and have limited financial reserves to absorb any delay or interruption in the payment of their wages. The failure to pay Prepetition Wages promptly would cause immediate and significant financial hardship to these Employees and their families, and would inevitably result in substantial workforce attrition as Employees seek employment with employers who are able to pay them on a timely basis.

27. Each individual Employee's claim for Prepetition Wages is well within the priority cap of $13,650 per individual established under section 507(a)(4) of the Bankruptcy Code (as adjusted for cases commenced after April 1, 2019, in accordance with 11 U.S.C. § 104). Accordingly, the Prepetition Wages constitute priority claims that would be required to be paid in full under any confirmable plan of reorganization pursuant to section 1129(a)(9)(B) of the Bankruptcy Code.

28. The Debtors respectfully request that this Court authorize, but not direct, the Debtors to pay all Prepetition Wages in the ordinary course of business.

B. Health and Welfare Benefits

29. In the ordinary course of their business, the Debtors maintain a comprehensive suite of health and welfare benefit programs for their Employees (collectively, the "Benefit Programs"). The Benefit Programs are a critical component of the Debtors' overall compensation packages and are essential to the Debtors' ability to attract and retain qualified Employees in a competitive labor market. The Benefit Programs include the following:

(a) Medical, Dental, and Vision Insurance. The Debtors offer medical, dental, and vision insurance coverage to eligible Employees and their dependents through group insurance plans administered by third-party insurers and plan administrators. The Debtors pay a significant portion of the monthly premiums for these plans, with Employees responsible for paying the remaining portion through payroll deductions. Medical insurance is provided through BlueCrest Health Plans, Inc.; dental insurance is provided through Quillon Assurance; and vision insurance is provided through Thackeray Group.

(b) Life Insurance and Accidental Death and Dismemberment (AD&D) Coverage. The Debtors provide basic life insurance and AD&D coverage to all eligible Employees at no cost to the Employee, with optional supplemental coverage available for purchase by Employees at their own expense. These benefits are administered through Halcyon Assurance

(c) Short-Term and Long-Term Disability Insurance. The Debtors provide short-term disability ("STD") and long-term disability ("LTD") insurance coverage to eligible Employees. STD benefits provide income replacement for Employees who are temporarily unable to work due to illness or injury, while LTD benefits provide income replacement for Employees who suffer a prolonged disability. These benefits are administered through Calderon Insurance.

(d) Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs). The Debtors offer FSAs and HSAs to eligible Employees, allowing Employees to set aside pre-tax dollars for qualifying medical, dental, and dependent care expenses. FSAs are administered by Greaves Technologies, and HSAs are maintained through Brightwater Capital Management.

(e) Employee Assistance Programs (EAPs). The Debtors provide EAP services to all Employees and their household members, offering confidential counseling, referral services, and support for a range of personal and work-related issues, including mental health, substance abuse, financial stress, and family concerns. The EAP is administered by Aldermere Strategy Partners.

30. As of the Petition Date, the Debtors estimate that they owe approximately $890,000 in accrued but unpaid employer contributions and premium payments in connection with the Benefit Programs for the prepetition period (the "Prepetition Benefit Obligations"). The Prepetition Benefit Obligations include employer premium contributions for medical, dental, and vision insurance; employer premium contributions for life insurance, AD&D, STD, and LTD coverage; employer matching or administrative contributions to FSAs and HSAs; and EAP administrative fees and service charges.

31. The continuation of the Benefit Programs is not merely a matter of competitive necessity; it is required by applicable federal and state law. The Debtors' health and welfare benefit plans are subject to the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), and the Patient Protection and Affordable Care Act (the "ACA"). The Debtors are obligated to maintain group health plan coverage for eligible Employees and to comply with applicable continuation coverage requirements. Failure to do so would expose the Debtors to significant legal liability and regulatory penalties, in addition to causing severe hardship to Employees and their dependents who rely on these benefits for their healthcare needs.

32. The Debtors respectfully request that this Court authorize, but not direct, the Debtors to continue the Benefit Programs in the ordinary course of business and to pay all Prepetition Benefit Obligations owed to plan administrators, insurers, and third-party administrators.

C. Workers' Compensation Obligations

33. The Debtors are required by law to maintain workers' compensation insurance coverage for their Employees in each of the states in which they operate manufacturing facilities—Ohio, Indiana, and Louisiana—in accordance with each state's statutory workers' compensation requirements. Workers' compensation coverage provides benefits to Employees who suffer work-related injuries or illnesses, including medical treatment, wage replacement, and rehabilitation services.

34. In Ohio, the Debtors participate in the Ohio Bureau of Workers' Compensation ("Ohio BWC") state fund program, which is a state-administered monopolistic system. In Indiana and Louisiana, the Debtors maintain workers' compensation insurance coverage through commercial carriers, specifically through policies issued by Severin Life Insurance The Debtors' workers' compensation programs include both premium payments and, in certain cases, self-insured retention ("SIR") obligations that require the Debtors to fund a portion of workers' compensation claims before coverage under the applicable insurance policy is triggered.

35. As of the Petition Date, the Debtors estimate that they owe approximately $215,000 in accrued but unpaid workers' compensation premium obligations and SIR payments attributable to the prepetition period (the "Prepetition WC Obligations"). The Prepetition WC Obligations include estimated premium payments to the Ohio BWC, premium payments to Severin Life Insurance for Indiana and Louisiana coverage, and SIR obligations for pending workers' compensation claims.

36. Maintenance of workers' compensation coverage is not discretionary—it is mandated by statute in each of the states in which the Debtors operate. Failure to maintain workers' compensation coverage could result in the Debtors being ordered to cease operations at one or more manufacturing facilities, the imposition of significant statutory fines and penalties, and potential criminal liability for the Debtors' officers and directors. Moreover, any lapse in workers' compensation coverage would expose the Debtors' estates to potentially significant uninsured liability for work-related injuries.

37. The Debtors respectfully request that this Court authorize, but not direct, the Debtors to continue honoring their workers' compensation obligations in the ordinary course and to pay all Prepetition WC Obligations.

D. Reimbursable Employee Business Expenses

38. In the ordinary course of their business, certain of the Debtors' Employees incur business-related expenses in the performance of their duties, including expenses for business travel (airfare, lodging, ground transportation, and meals), office and production supplies, professional development and continuing education, industry conferences and trade shows, and other miscellaneous business expenses. Employees submit expense reports for reimbursement in accordance with the Debtors' written expense reimbursement policies, which set forth permissible expense categories, documentation requirements, and applicable spending limits. The Debtors' expense reimbursement policies are consistent with industry norms and are designed to ensure that Employees are not required to bear the personal financial burden of expenses incurred on behalf of the Debtors' business.

39. As of the Petition Date, the Debtors estimate that they owe approximately $85,000 in accrued but unpaid reimbursable employee business expenses for the prepetition period (the "Prepetition Expense Reimbursements"). The Prepetition Expense Reimbursements consist primarily of travel and entertainment expenses incurred by sales, operations, and management personnel in connection with customer visits, supplier meetings, and interplant travel among the Debtors' four manufacturing facilities.

40. The Debtors respectfully request that this Court authorize, but not direct, the Debtors to reimburse Prepetition Expense Reimbursements in the ordinary course of business.

E. Payroll Taxes and Withholdings

41. In connection with the compensation of their Employees, the Debtors are required by applicable federal, state, and local law to withhold certain amounts from Employee wages and to remit such amounts, together with the employer's share of applicable payroll taxes, to the appropriate taxing authorities. The payroll taxes and withholdings for which the Debtors are responsible include the following:

(a) Federal Income Tax Withholdings ("FITW"). The Debtors are required to withhold federal income taxes from Employee wages in accordance with the withholding elections set forth on each Employee's Form W-4 and applicable IRS withholding tables.

(b) Federal Insurance Contributions Act ("FICA") Taxes. The Debtors are required to withhold the employee's share of FICA taxes (comprising Social Security tax at a rate of 6.2% on wages up to the applicable wage base and Medicare tax at a rate of 1.45% on all wages, plus the Additional Medicare Tax of 0.9% on wages exceeding $200,000) and to pay the employer's matching share of FICA taxes (6.2% for Social Security and 1.45% for Medicare).

(c) Federal Unemployment Tax Act ("FUTA") Taxes. The Debtors are responsible for the payment of FUTA taxes at the applicable rate on the first $7,000 of each Employee's wages during the calendar year.

(d) State Income Tax Withholdings. The Debtors are required to withhold state income taxes from Employee wages in accordance with the laws of Ohio, Indiana, and Louisiana, as applicable based on each Employee's work location and state of residence.

(e) State and Local Unemployment Taxes ("SUTA"). The Debtors are responsible for the payment of SUTA taxes in Ohio, Indiana, and Louisiana at the applicable employer-specific experience rates.

(f) Local and Municipal Income Tax Withholdings. The Debtors are required to withhold local and municipal income taxes from Employee wages as required by applicable local tax ordinances, including the municipal income taxes imposed by the City of Akron, Ohio, and other Ohio municipalities in which Employees reside or work.

42. Amounts withheld from Employee wages for federal, state, and local income taxes and for the employee's share of FICA taxes constitute trust fund obligations held by the Debtors in trust for the benefit of the applicable taxing authorities. As trust fund obligations, these amounts are not property of the Debtors' bankruptcy estates under section 541 of the Bankruptcy Code. See Begier v. Internal Revenue Service, 496 U.S. 53, 59 (1990) (holding that amounts collected for taxes are held in trust and are not property of the estate).

43. As of the Petition Date, the Debtors estimate that they owe approximately $610,000 in accrued but unremitted payroll tax withholdings and employer payroll tax obligations for the prepetition period (the "Prepetition Payroll Tax Obligations"). The Prepetition Payroll Tax Obligations include both trust fund amounts withheld from Employee wages and the Debtors' employer-side payroll tax obligations.

44. The timely remittance of payroll tax withholdings is not merely a matter of sound business practice—it is a legal imperative. The Internal Revenue Code imposes a trust fund recovery penalty under 26 U.S.C. § 6672 (the "Trust Fund Recovery Penalty") on any "responsible person" who willfully fails to collect, account for, or pay over trust fund taxes. The Trust Fund Recovery Penalty may be assessed against the Debtors' officers and directors in their individual capacities. Analogous personal liability provisions exist under the tax laws of Ohio, Indiana, and Louisiana. Failure to remit withheld taxes in a timely manner would expose the Debtors' officers and directors to significant personal liability and could impair the Debtors' ability to retain key members of their management team during the restructuring process.

45. The Debtors respectfully request that this Court authorize, but not direct, the Debtors to remit all Prepetition Payroll Tax Obligations, including trust fund withholdings and employer payroll tax obligations, in the ordinary course of business.

F. Paid Time Off, Vacation, and Sick Leave

46. The Debtors maintain paid time off ("PTO"), vacation, and sick leave policies for their Employees (the "PTO Policies"). Under the PTO Policies, eligible Employees accrue PTO based on their length of service and employment classification. PTO accrual rates generally range from 10 days per year for Employees with less than three years of service to 25 days per year for Employees with 15 or more years of service. The PTO Policies also provide for sick leave accrual and, for certain Employee classifications, separate vacation accrual.

47. As of the Petition Date, certain Employees have accrued but unused PTO and vacation balances. Under the laws of certain states in which the Debtors operate, accrued but unused PTO and vacation time is considered earned compensation that must be paid out upon an Employee's termination or separation from employment. For example, under Louisiana law, upon termination of employment, an employer is required to pay all amounts due, including accrued vacation, within a specified period. The Debtors' PTO Policies are designed to comply with applicable state law requirements.

48. The Debtors respectfully request that this Court authorize, but not direct, the Debtors to continue honoring their PTO Policies in the ordinary course of business, including the payment of accrued prepetition PTO upon usage or upon an Employee's termination or separation from employment, as required by applicable state law and the terms of the PTO Policies.

G. Summary of Estimated Prepetition Employee Obligations

49. The following table summarizes the Debtors' estimated prepetition Employee Obligations for which relief is sought in this Motion:

50. The Debtors request authority to pay the foregoing Employee Obligations in the ordinary course of business, subject to applicable priority caps under the Bankruptcy Code and the limitations set forth in the Proposed Order. The Debtors submit that the aggregate amount of approximately $5.0 million is reasonable and necessary to maintain the Debtors' workforce and operations during these Chapter 11 cases.

V. BASIS FOR RELIEF

A. Sections 363(b) and 105(a) of the Bankruptcy Code

51. Section 363(b)(1) of the Bankruptcy Code provides, in pertinent part, that "[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C. § 363(b)(1). Courts have uniformly recognized that section 363(b) empowers a debtor in possession to make payments on prepetition claims where such payments are supported by a sound business justification. See, e.g., In re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989); In re Lehigh & New England Ry. Co., 657 F.2d 570, 581 (3d Cir. 1981).

52. Section 105(a) of the Bankruptcy Code provides that "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105(a). This broad equitable power enables the Court to authorize payments of prepetition claims where such payments are necessary to facilitate the successful reorganization of the debtor's business and the preservation of the debtor's estate for the benefit of all stakeholders. See In re Just for Feet, Inc., 242 B.R. 821, 824-25 (D. Del. 1999).

53. Courts routinely authorize the payment of prepetition employee wages and benefits pursuant to sections 363(b) and 105(a) where, as here, such payments are necessary to preserve the debtor's workforce and the going-concern value of the estate. See, e.g., In re Wehrenberg, Inc., No. 20-44561-399 (Bankr. E.D. Mo. 2020); In re Briggs & Stratton Corp., No. 20-43597-svk (Bankr. E.D. Wis. 2020); In re Pyxus Int'l, Inc., No. 20-33495 (Bankr. M.D.N.C. 2020). Indeed, motions for authority to pay prepetition employee wages and benefits are among the most commonly filed "first day" motions in Chapter 11 cases, and courts consistently grant such relief upon a showing that payment is necessary to maintain the debtor's operations and employee morale during the restructuring process.

54. The "doctrine of necessity," sometimes referred to as the "necessity of payment" doctrine, provides an additional and well-established basis for the relief sought herein. Under this doctrine, a court may authorize payment of prepetition claims where such payments are essential to the continued operation of the debtor's business. See In re Lehigh & New England Ry. Co., 657 F.2d at 581 ("The necessity of payment doctrine permits a court to authorize a debtor in possession or a trustee to pay pre-reorganization claims where such payment is essential to the continued operation of the debtor."); In re CoServ, L.L.C., 273 B.R. 487, 497 (Bankr. N.D. Tex. 2002). The doctrine recognizes that, in certain circumstances, the strict application of the priority scheme established by the Bankruptcy Code would be counterproductive and would actually diminish the value of the estate available for distribution to all creditors.

55. Here, the payment of the Employee Obligations satisfies the business judgment standard applicable to transactions under section 363(b). The Debtors' management, in the exercise of their sound business judgment, has determined that the payment of the Employee Obligations is necessary to (a) retain the Debtors' approximately 1,420 Employees, who are essential to the continued operation of the Debtors' four manufacturing facilities; (b) maintain Employee morale during the Chapter 11 process; (c) avoid disruption to the Debtors' manufacturing operations, which would impair the Debtors' ability to fulfill customer orders and generate revenue; and (d) preserve the going-concern value of the Debtors' estates for the benefit of all stakeholders. The Debtors' management further believes, in its sound business judgment, that any failure or delay in the payment of the Employee Obligations would result in significant and irreparable harm to the Debtors' business and estates.

B. Priority Treatment Under Sections 507(a)(4) and 507(a)(5)

56. The relief requested herein is further supported by the priority treatment accorded to employee wage and benefit claims under the Bankruptcy Code. Section 507(a)(4) of the Bankruptcy Code provides fourth-priority status for "allowed unsecured claims . . . for wages, salaries, or commissions, including vacation, severance, and sick leave pay," earned within 180 days before the date of the filing of the petition or the date of cessation of the debtor's business (whichever occurs first), to the extent of $13,650 per individual (as adjusted effective April 1, 2019). 11 U.S.C. § 507(a)(4).

57. Section 507(a)(5) of the Bankruptcy Code provides fifth-priority status for "allowed unsecured claims for contributions to an employee benefit plan . . . arising from services rendered within 180 days before the date of the filing of the petition or the date of cessation of the debtor's business, whichever occurs first," subject to a per-employee cap of $13,650, reduced by the amount paid to such employee under section 507(a)(4). 11 U.S.C. § 507(a)(5).

58. The prepetition Employee Obligations for which the Debtors seek payment authority in this Motion were earned within 180 days before the Petition Date and fall within the per-employee priority caps established under sections 507(a)(4) and 507(a)(5). Accordingly, these claims are entitled to priority treatment and would ultimately be required to be paid in full under any confirmable plan of reorganization. Section 1129(a)(9)(B) of the Bankruptcy Code requires that, as a condition of confirmation, a plan must provide for the payment in full of all priority claims under sections 507(a)(4) and 507(a)(5), unless the holder of a particular claim agrees to different treatment. 11 U.S.C. § 1129(a)(9)(B).

59. Because the Employee Obligations constitute priority claims that must be paid in full under any confirmable plan, authorizing payment now—rather than deferring payment until plan confirmation—advances the interests of the estates and all stakeholders. Prompt payment avoids the administrative burden and expense of tracking, reconciling, and eventually paying thousands of individual priority claims during the plan confirmation process. More importantly, prompt payment retains the Debtors' workforce, preserves going-concern value, and facilitates the successful reorganization of the Debtors' business—all of which inure to the benefit of the estates and all creditors.

C. Trust Fund Obligations

60. As set forth above, payroll tax withholdings—including federal, state, and local income tax withholdings and the employee's share of FICA taxes—are held by the Debtors in trust for the benefit of the applicable taxing authorities. These amounts are not property of the Debtors' bankruptcy estates. See Begier v. Internal Revenue Service, 496 U.S. 53, 59 (1990); see also City of Farrell v. Sharon Steel Corp., 41 F.3d 92, 95-96 (3d Cir. 1994) (recognizing that trust fund taxes are not property of the estate).

61. The Debtors have a fiduciary obligation to remit withheld payroll taxes to the appropriate taxing authorities in a timely manner. Failure to remit trust fund taxes exposes the Debtors' officers and directors to personal liability under the Trust Fund Recovery Penalty provisions of 26 U.S.C. § 6672, as well as analogous state law provisions. Under section 6672, any person who is required to collect, truthfully account for, and pay over any tax imposed by the Internal Revenue Code, and who willfully fails to do so, is liable for a penalty equal to the total amount of the tax not collected, accounted for, or paid over. The penalty is assessed against the "responsible person" individually, not against the corporate entity, and survives the bankruptcy of the corporate debtor.

62. In light of the foregoing, the Court should authorize the remittance of all trust fund tax obligations as a matter of course. Because these amounts are not property of the estate, their remittance does not diminish the value of the estate or prejudice any creditor. To the contrary, failure to remit trust fund taxes would expose the Debtors' officers and directors to personal liability, potentially impairing the Debtors' ability to retain key management personnel at a critical juncture in the restructuring process.

D. Necessity to Preserve Going-Concern Value

63. The overarching rationale for the relief sought in this Motion is the preservation of the going-concern value of the Debtors' estates. The Debtors' approximately 1,420 Employees are the principal driver of that going-concern value. The Debtors' Employees operate four manufacturing plants, maintain complex production equipment, ensure compliance with rigorous environmental, health, and safety regulations, manage customer relationships, and perform the myriad other functions upon which the Debtors' business depends.

64. The loss of key Employees—whether production operators, maintenance technicians, quality assurance specialists, engineers, plant managers, or administrative personnel—would have an immediate and cascading impact on the Debtors' operations. Specifically, Employee attrition would impair the Debtors' ability to:

(a) maintain production schedules at the Debtors' four manufacturing facilities;

(b) satisfy existing customer orders and contractual commitments;

(d) maintain the quality and safety standards required for the Debtors' chemical packaging and containment products;

(e) operate and maintain complex extrusion, blow molding, and fabrication equipment; and

(f) preserve customer and supplier relationships that are essential to the Debtors' ongoing operations.

65. The consequences of significant Employee attrition would be severe and potentially irreversible. Customer relationships developed over years or decades could be lost. Manufacturing expertise embodied in the Debtors' skilled workforce could dissipate. The Debtors' ability to generate revenue and maintain cash flow during the restructuring process would be severely compromised. Ultimately, the going-concern value of the Debtors' estates—which is the foundation upon which the Prepackaged Plan is built—would be materially diminished.

66. The Debtors further note that the DIP Budget approved on an interim basis in connection with the Debtors' motion for authority to obtain debtor-in-possession financing (the "DIP Motion") contemplates the continued payment of Employee Obligations in the ordinary course of the Debtors' business. The DIP lenders, in agreeing to provide postpetition financing to the Debtors, did so with the understanding and expectation that the Debtors would maintain their workforce and continue to operate their business as a going concern during the Chapter 11 cases. The relief sought in this Motion is entirely consistent with the DIP Budget and the DIP lenders' expectations.

E. Authorization for Banks to Honor Payment Requests

67. To ensure the efficient and timely payment of the Employee Obligations authorized by this Motion, the Debtors request that this Court authorize and direct all applicable banks and financial institutions to receive, process, honor, and pay any and all checks drawn on, or electronic payment requests (including ACH transfers, wire transfers, and other electronic fund transfers) submitted to, the Debtors' bank accounts in connection with the Employee Obligations authorized to be paid pursuant to this Motion, to the extent the Debtors have sufficient funds on deposit in the applicable accounts.

68. The Debtors maintain their primary operating accounts at Ridgeline National Bank, N.A. (the "Bank"), which serves as the Debtors' primary depository institution. The Debtors' payroll processing is administered through Ashgrove Solutions ("Larkspur Systems"), which processes payroll disbursements through the Debtors' accounts at the Bank. The Debtors request that the Bank, Larkspur Systems, and any other applicable banks and financial institutions be authorized and directed to honor and process all payment requests related to the Employee Obligations authorized by this Motion, without further order of this Court, and that such institutions not be liable to any party for doing so in good faith and in reliance upon the order entered on this Motion.

VI. WAIVER OF MEMORANDUM REQUIREMENT

69. The Debtors respectfully request that the Court waive any applicable requirement under the Local Rules of the United States Bankruptcy Court for the Northern District of Ohio or any other applicable rule or order requiring the filing of a separate memorandum of law in support of this Motion. The relief requested herein is of the type routinely granted by bankruptcy courts in Chapter 11 cases on a first day basis, the legal bases for such relief are well established, and the urgent nature of the relief sought—necessitated by the risk of immediate and irreparable harm to the Debtors' workforce and business operations—counsels in favor of prompt consideration of this Motion without the delay that would be occasioned by the preparation and filing of a separate memorandum.

VII. NOTICE

70. Notice of this Motion has been provided to the following parties or, where applicable, their counsel:

(a) The Office of the United States Trustee for Region 9, Howard M. Metzenbaum U.S. Courthouse, 201 Superior Avenue, Cleveland, Ohio 44114;

(b) Ridgeline National Bank, N.A., in its capacity as administrative agent under the First Lien Credit Agreement and as DIP agent under the DIP Facility, 200 Public Square, Cleveland, Ohio 44114, Attention: Loan Administration Department;

(c) Hargrove, Mitchell & Saunders LLP, as counsel to the Ad Hoc Group of First Lien Lenders, 51 West 52nd Street, New York, New York 10019, Attention: Victoria Kline, Esq.;

(d) Pemberton & Locke LLP, as counsel to the Ad Hoc Group of Second Lien Noteholders, 1 Liberty Plaza, New York, New York 10006, Attention: Raymond Delvecchio, Esq.;

(e) Continental Fiduciary Trust Company, as indenture trustee under the Second Lien Indenture, 101 Barclay Street, New York, New York 10286; and

(f) All other parties entitled to notice pursuant to Bankruptcy Rule 4001, Bankruptcy Rule 9013, and the applicable Local Rules of this Court.

71. The Debtors submit that the foregoing notice is sufficient under the circumstances and that no further or other notice of this Motion is required or necessary.

VIII. NO PRIOR REQUEST

72. No prior request for the relief sought in this Motion has been made to this or any other court.

IX. CONCLUSION AND PRAYER FOR RELIEF

WHEREFORE, the Debtors respectfully request that this Court enter an order, substantially in the form attached hereto as Exhibit A:

(a) Authorizing, but not directing, the Debtors to pay all prepetition wages, salaries, and commissions owed to Employees in the ordinary course of business, in an aggregate amount not to exceed $3.2 million;

(b) Authorizing, but not directing, the Debtors to continue Employee health and welfare benefit programs in the ordinary course of business and to pay all prepetition amounts owed in connection therewith, in an aggregate amount not to exceed $890,000;

(c) Authorizing, but not directing, the Debtors to honor all prepetition workers' compensation obligations, in an aggregate amount not to exceed $215,000;

(d) Authorizing, but not directing, the Debtors to reimburse all prepetition employee business expenses in the ordinary course of business, in an aggregate amount not to exceed $85,000;

(e) Authorizing, but not directing, the Debtors to remit all prepetition payroll tax withholdings and to pay all employer payroll tax obligations in the ordinary course of business, in an aggregate amount not to exceed $610,000;

(f) Authorizing, but not directing, the Debtors to honor accrued PTO, vacation, and sick leave policies in the ordinary course of business consistent with prepetition policies and applicable state law;

(g) Authorizing and directing all applicable banks and financial institutions, including Ridgeline National Bank, N.A., to receive, process, honor, and pay any and all checks drawn on, or electronic payment requests submitted to, the Debtors' accounts in connection with the Employee Obligations authorized to be paid by this Motion;

(h) Waiving any applicable requirement for the filing of a separate memorandum of law in support of this Motion; and

(i) Granting such other and further relief as this Court deems just and proper.

Dated: June 20, 2022 Akron, Ohio

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Colette Whitman (NY Bar No. 4512887) Nathaniel Bower (NY Bar No. 4738201) Gabrielle Moss (NY Bar No. 5329104) Amy Chesterton (NY Bar No. 5481762) 30 Rockefeller Plaza New York, New York 10112 Telephone: (212) 558-4000 Facsimile: (212) 558-3588

— and —

127 Public Square, Suite 4100 Cleveland, Ohio 44114 Telephone: (216) 479-8500 Facsimile: (216) 479-8780

Counsel to the Debtors and Debtors in Possession

KELLNER & HARTWICK LLP

By: ________

Bruce Tatelman (OH Bar No. 0068342) 600 Superior Avenue East, Suite 1800 Cleveland, Ohio 44114 Telephone: (216) 621-0200 Facsimile: (216) 241-2824

Local Co-Counsel to the Debtors and Debtors in Possession

EXHIBIT A

PROPOSED ORDER

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

ORDER AUTHORIZING, BUT NOT DIRECTING, THE DEBTORS TO (I) PAY PREPETITION EMPLOYEE WAGES, SALARIES, AND COMMISSIONS, (II) CONTINUE EMPLOYEE BENEFITS PROGRAMS, (III) PAY PREPETITION WORKERS' COMPENSATION OBLIGATIONS, (IV) REIMBURSE EMPLOYEE BUSINESS EXPENSES, AND (V) PAY ALL RELATED PAYROLL TAXES AND WITHHOLDINGS

Upon the motion (the "Motion")^2 of Crestline Packaging Solutions LLC and CPS Holdings Inc., as debtors and debtors in possession (collectively, the "Debtors"), for entry of an order authorizing, but not directing, the Debtors to (i) pay prepetition employee wages, salaries, and commissions, (ii) continue employee benefits programs and pay prepetition amounts owed in connection therewith, (iii) pay prepetition workers' compensation obligations, (iv) reimburse prepetition employee business expenses, and (v) pay all related payroll taxes and withholdings, all as more fully set forth in the Motion; and the Court having considered the Motion, the Declaration of Dana Kowalski, Chief Financial Officer of Crestline Packaging Solutions LLC, filed in support of the Debtors' first day motions (the "Kowalski Declaration"), any objections thereto, and the arguments of counsel, if any; and the Court having found that (a) the Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334, (b) this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2), (c) venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409, and (d) adequate and sufficient notice of the Motion has been provided under the circumstances, and no other or further notice need be given; and the Court having determined that the legal and factual bases set forth in the Motion and the Kowalski Declaration establish just cause for the relief granted herein; and after due deliberation and good and sufficient cause appearing therefor,

^2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Motion.

IT IS HEREBY ORDERED THAT:

1. The Motion is GRANTED as set forth herein.

2. The Debtors are authorized, but not directed, to pay all accrued and unpaid prepetition wages, salaries, and commissions owed to their Employees in the ordinary course of business, in an aggregate amount not to exceed $3,200,000, provided that no individual Employee shall receive payment on account of prepetition wage, salary, or commission claims in excess of the applicable priority cap established under section 507(a)(4) of the Bankruptcy Code (currently $13,650 per individual, as adjusted).

3. The Debtors are authorized, but not directed, to continue their health and welfare benefit programs in the ordinary course of business and to pay all accrued and unpaid prepetition amounts owed to plan administrators, insurers, and third-party administrators in connection therewith, in an aggregate amount not to exceed $890,000.

4. The Debtors are authorized, but not directed, to honor all prepetition workers' compensation obligations, including premium payments and self-insured retention payments, in the ordinary course of business, in an aggregate amount not to exceed $215,000.

5. The Debtors are authorized, but not directed, to reimburse all accrued and unpaid prepetition employee business expenses in the ordinary course of business, in an aggregate amount not to exceed $85,000.

6. The Debtors are authorized, but not directed, to remit all accrued and unremitted prepetition payroll tax withholdings and to pay all accrued and unpaid employer payroll tax obligations for the prepetition period in the ordinary course of business, in an aggregate amount not to exceed $610,000.

7. The Debtors are authorized, but not directed, to honor accrued paid time off, vacation, and sick leave obligations in the ordinary course of business consistent with the Debtors' prepetition policies and applicable state law.

8. All applicable banks and financial institutions, including without limitation Ridgeline National Bank, N.A., are authorized and directed to receive, process, honor, and pay any and all checks drawn on, or electronic payment requests (including ACH transfers, wire transfers, and other electronic fund transfers) submitted to, the Debtors' bank accounts in connection with the Employee Obligations authorized to be paid by this Order, to the extent the Debtors have sufficient funds on deposit in the applicable accounts. No bank or financial institution that honors or processes any such payment in good faith and in reliance upon this Order shall have any liability to any party for doing so.

9. Nothing in this Order shall be deemed or construed as (a) an admission as to the validity, priority, or amount of any claim against the Debtors, (b) a waiver of the Debtors' or any other party in interest's right to dispute any claim on any grounds, (c) a promise or requirement that the Debtors continue to employ any particular Employee, or (d) an implication that any claim is entitled to priority or other treatment beyond what is expressly provided in this Order and the Bankruptcy Code.

10. The Debtors are authorized to take all actions and to execute all documents and instruments as may be reasonably necessary or appropriate to implement the terms of this Order.

11. Notwithstanding Bankruptcy Rule 6004(h), this Order shall be effective immediately upon entry and shall not be stayed for fourteen (14) days.

12. This Court retains exclusive jurisdiction over all matters arising from or related to the implementation, interpretation, and enforcement of this Order.

###

Dated: June _, 2022 Akron, Ohio

________________________________________

UNITED STATES BANKRUPTCY JUDGE

In re:	Chapter 11
CRESTLINE PACKAGING SOLUTIONS LLC, et al.,^1	Case No. 22-51247
Debtors.	(Jointly Administered)
Category	Estimated Amount
Wages, Salaries, and Commissions	$3,200,000
Health and Welfare Benefits	$890,000
Workers' Compensation	$215,000
Expense Reimbursements	$85,000
Payroll Taxes and Withholdings	$610,000
Aggregate Estimated Amount	$5,000,000
In re:	Chapter 11
CRESTLINE PACKAGING SOLUTIONS LLC, et al.,^1	Case No. 22-51247
Debtors.	(Jointly Administered)

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION
^1 The Debtors in these Chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, are: Crestline Packaging Solutions LLC (EIN: xx-xxx4817) and CPS Holdings Inc. (EIN: xx-xxx9203). The location of the Debtors' corporate headquarters and the service address for the Debtors in these Chapter 11 cases is 4710 Industrial Corridor Drive, Akron, OH 44308.
DEBTORS' MOTION FOR ENTRY OF AN ORDER AUTHORIZING, BUT NOT DIRECTING, THE DEBTORS TO (I) PAY PREPETITION EMPLOYEE WAGES, SALARIES, AND COMMISSIONS, (II) CONTINUE EMPLOYEE BENEFITS PROGRAMS, (III) PAY PREPETITION WORKERS' COMPENSATION OBLIGATIONS, (IV) REIMBURSE EMPLOYEE BUSINESS EXPENSES, AND (V) PAY ALL RELATED PAYROLL TAXES AND WITHHOLDINGS
Crestline Packaging Solutions LLC and CPS Holdings Inc., as debtors and debtors in possession in the above-captioned Chapter 11 cases (collectively, the "Debtors"), hereby move this Court (the "Motion") for entry of an order, substantially in the form attached hereto as Exhibit A (the "Proposed Order"), authorizing, but not directing, the Debtors to (i) pay prepetition employee wages, salaries, and commissions, (ii) continue employee benefits programs and pay prepetition amounts owed in connection therewith, (iii) pay prepetition workers' compensation obligations, (iv) reimburse prepetition employee business expenses, and (v) pay all related payroll taxes and withholdings. In support of this Motion, the Debtors respectfully represent as follows:
I. PRELIMINARY STATEMENT
1. On June 20, 2022 (the "Petition Date"), the Debtors filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Northern District of Ohio (this "Court"). The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No request has been made for the appointment of a trustee or examiner, and no official committee of unsecured creditors has yet been appointed.
2. The Debtors are leading manufacturers of specialty chemical packaging and industrial containment products, employing approximately 1,420 employees (the "Employees") across four manufacturing facilities located in the states of Ohio, Indiana, and Louisiana, as well as the Debtors' corporate headquarters in Akron, Ohio. The Employees perform critical functions across every aspect of the Debtors' manufacturing operations, including the production of high-density polyethylene ("HDPE") drums, intermediate bulk containers ("IBCs"), steel pails, and specialty containment vessels that serve customers in the chemical, petrochemical, and agricultural sectors.
3. The Debtors' Employees are the lifeblood of the Debtors' enterprise. They operate complex extrusion and molding equipment, maintain compliance with rigorous Department of Transportation ("DOT") and Environmental Protection Agency ("EPA") containment and safety standards, and carry out the daily manufacturing, quality assurance, logistics, and administrative functions upon which the Debtors' business depends. Many of the Debtors' Employees possess specialized technical skills and institutional knowledge that would be extremely difficult—and in some cases impossible—to replace in the current labor market, particularly in the manufacturing and industrial sectors in which the Debtors operate.
4. By this Motion, the Debtors seek authority to pay prepetition obligations owed to their Employees, including (a) accrued but unpaid wages, salaries, and commissions, (b) accrued but unpaid employer contributions and premium payments for health and welfare benefit programs, (c) accrued but unpaid workers' compensation premium obligations and self-insured retention payments, (d) accrued but unpaid reimbursable employee business expenses, (e) accrued but unremitted payroll tax withholdings and employer payroll tax obligations, and (f) obligations arising under paid time off, vacation, and sick leave policies (collectively, the "Employee Obligations"). The Debtors estimate that the aggregate amount of prepetition Employee Obligations for which relief is sought herein is approximately $5.0 million.
5. The prompt payment of the Employee Obligations is essential to the Debtors' continued operations and their ability to preserve going-concern value for the benefit of all stakeholders. Without such payment, the Debtors face a serious and immediate risk that Employees will abandon their positions and seek employment elsewhere, resulting in critical disruptions to manufacturing operations at all four of the Debtors' production facilities. Such disruptions would impair the Debtors' ability to fulfill existing customer orders, maintain regulatory compliance, and preserve the value of their estates—consequences that would be devastating not only to the Employees themselves but to all parties in interest.
6. The Debtors' ability to maintain their workforce intact is also essential to the successful consummation of the prepackaged plan of reorganization (the "Prepackaged Plan") that the Debtors intend to file in short order. The Prepackaged Plan, which has been developed in consultation with the Debtors' principal secured creditor constituencies, contemplates the Debtors' emergence from Chapter 11 as going concerns with their operations substantially intact. The loss of key Employees during the pendency of these cases would fundamentally undermine that objective.
7. This Motion is supported by the Declaration of Dana Kowalski, Chief Financial Officer of Crestline Packaging Solutions LLC (the "Kowalski Declaration"), filed contemporaneously herewith in support of the Debtors' first day motions, which provides additional detail concerning the Debtors' business operations, workforce, benefit programs, and the necessity for the relief requested herein.
II. JURISDICTION AND VENUE
8. This Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and 1334 and the General Order of Reference entered by the United States District Court for the Northern District of Ohio dated April 4, 2012 (the "General Order of Reference"), referring all proceedings arising under Title 11, or arising in or related to a case under Title 11, to this Court.
9. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). The Debtors confirm their consent, pursuant to Rule 7008 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), to the entry of a final order by this Court in connection with this Motion to the extent that it is later determined that this Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith consistent with Article III of the United States Constitution. See Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665 (2015).
10. Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409. The Debtors' corporate headquarters and principal place of business are located in Akron, Ohio, which is within the Northern District of Ohio, Eastern Division.
11. The statutory bases for the relief requested herein are sections 105(a), 363(b), 507(a)(4), 507(a)(5), and 541 of the Bankruptcy Code, as well as Bankruptcy Rules 6003 and 6004 and the applicable Local Rules of this Court.
III. BACKGROUND
A. General Background
12. Crestline Packaging Solutions LLC ("Crestline") is an Ohio limited liability company with its corporate headquarters and principal place of business located at 4710 Industrial Corridor Drive, Akron, Ohio 44308. CPS Holdings Inc. ("CPS Holdings") is a Delaware corporation that serves as the direct parent entity of Crestline, with its registered agent located at 1209 Orange Street, Wilmington, Delaware 19801, c/o National Corporate Services, Inc. CPS Holdings does not conduct any independent business operations and exists solely as a holding company.
13. Crestline was formed in 2007 and quickly established itself as a significant participant in the specialty chemical packaging and industrial containment products market. In October 2017, Crestline was acquired in a leveraged buyout by Thornfield Capital Partners LP ("Thornfield"), a middle-market private equity firm, for an aggregate enterprise value of approximately $410 million. In connection with the acquisition, Thornfield caused CPS Holdings to be formed as the parent holding company through which it holds its equity interest in Crestline.
14. The Debtors are engaged in the manufacture and distribution of specialty chemical packaging and industrial containment products. The Debtors' core product lines include HDPE drums, IBCs, steel pails, and specialty containment vessels, all of which are designed to meet stringent DOT and EPA regulatory standards for the safe transportation and storage of chemicals, petrochemicals, and agricultural products. The Debtors' products serve a diverse base of customers across the chemical, petrochemical, and agricultural sectors, including a number of Fortune 500 companies.
15. In fiscal year 2021 ("FY2021"), the Debtors generated total revenue of approximately $312.6 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $38.4 million. The Debtors' financial performance deteriorated significantly during FY2021, with revenue declining approximately 18% from FY2020 to FY2021. This decline was attributable primarily to dramatic increases in the cost of high-density polyethylene resin—a key raw material input—as well as broader supply chain disruptions that impaired the Debtors' ability to pass through cost increases to customers on a timely basis. These trends continued into FY2022, with trailing twelve-month ("TTM") EBITDA as of the first quarter of 2022 ("Q1 2022") declining further to approximately $29.1 million, reflecting continued margin compression and an inability to fully offset rising input costs.
16. As of the Petition Date, the Debtors' total funded indebtedness was approximately $247.3 million, consisting of the following: (a) a revolving credit facility with an aggregate commitment of $50.0 million, of which approximately $32.6 million was drawn as of the Petition Date; (b) a first lien term loan in the original principal amount of $175.0 million, with an outstanding balance of approximately $158.7 million as of the Petition Date; and (c) second lien notes in the aggregate principal amount of $56.0 million. The revolving credit facility and the first lien term loan are governed by that certain First Lien Credit Agreement, dated as of October 13, 2017, by and among the Debtors, Ridgeline National Bank, N.A., as administrative agent (the "First Lien Agent"), and the lenders party thereto (as amended, the "First Lien Credit Agreement"). The second lien notes are governed by that certain Second Lien Notes Indenture, dated as of October 13, 2017, by and among CPS Holdings, Crestline, and Continental Fiduciary Trust Company, as indenture trustee (the "Second Lien Indenture").
17. The Debtors' financial performance decline and resulting liquidity constraints led to a breach of the maximum leverage ratio covenant contained in the First Lien Credit Agreement, which required the Debtors to maintain a ratio of Total Net Debt to EBITDA (as defined therein) not to exceed 5.75x. As of Q1 2022, the Debtors' actual leverage ratio was approximately 8.50x, materially exceeding the covenant threshold. As a consequence, on April 22, 2022, Ridgeline National Bank, N.A., in its capacity as the First Lien Agent, delivered a Notice of Default to the Debtors pursuant to the terms of the First Lien Credit Agreement. Following intensive negotiations among the Debtors, Thornfield, and the Debtors' principal creditor constituencies, the Debtors and the First Lien Agent entered into a Forbearance Agreement on May 18, 2022 (the "Forbearance Agreement"), pursuant to which the First Lien Agent and the requisite lenders agreed to forbear from exercising remedies through June 30, 2022, conditioned upon, among other things, the Debtors' filing of the instant Chapter 11 cases on or before June 20, 2022.
18. A more detailed description of the Debtors' business, corporate structure, capital structure, prepetition financing arrangements, and the events leading to the commencement of these Chapter 11 cases is set forth in the Kowalski Declaration, which is incorporated herein by reference.
B. The Debtors' Employees and Workforce
19. As of the Petition Date, the Debtors employ approximately 1,420 Employees across their four manufacturing facilities and corporate headquarters. The Debtors' workforce is distributed among the following locations:
(a) Akron Headquarters and Plant 1 (4710 Industrial Corridor Drive, Akron, Ohio 44308): Approximately 480 Employees, comprising the Debtors' corporate headquarters operations (including executive management, finance, accounting, human resources, legal, IT, and corporate development functions) as well as the Debtors' HDPE drum manufacturing plant, which is the largest of the Debtors' four production facilities by headcount and production volume.
(b) Plant 2 (2255 Commerce Parkway, Evansville, Indiana 47725): Approximately 390 Employees, primarily engaged in the manufacture of IBCs and steel pails. Plant 2 is a key production facility for the Debtors' intermediate bulk container product line, which represents a significant and growing portion of the Debtors' revenue.
(c) Plant 3 (8100 River Road, Baton Rouge, Louisiana 70820): Approximately 310 Employees, primarily engaged in the manufacture of specialty containment vessels. Plant 3 serves the Debtors' petrochemical and chemical customers concentrated in the Gulf Coast region, and its proximity to major petrochemical complexes is strategically important to the Debtors' operations.
(d) Plant 4 (1480 State Route 59, Ravenna, Ohio 44266): Approximately 240 Employees, primarily engaged in extrusion and secondary processing operations, including the production of HDPE sheets and liners used in the Debtors' drum and IBC manufacturing processes.
20. The Debtors' workforce spans a diverse range of functions and skill sets essential to the continued operation of the Debtors' business. The Employees include salaried management and administrative personnel, hourly manufacturing and production workers, quality control and safety personnel, maintenance technicians, logistics and warehouse staff, and sales and customer service professionals. The Debtors' senior management team includes Marcus J. Reinholdt, Chief Executive Officer; Dana Kowalski, Chief Financial Officer; and Preston Yee, General Counsel.
21. Many of the Debtors' Employees possess specialized technical skills and knowledge that are directly critical to the Debtors' manufacturing operations. The Debtors' production processes require expertise in chemical packaging manufacturing, extrusion and blow molding processes, quality assurance testing, and compliance with the complex web of DOT and EPA regulatory requirements governing the design, manufacture, testing, and certification of chemical containment and transportation packaging. These skills are highly specialized and are developed over years of training and on-the-job experience. In the current labor market—which remains exceptionally tight in the manufacturing sector—replacing Employees with equivalent skills and experience would be extremely difficult, time-consuming, and costly.
22. Any significant disruption to the Debtors' workforce would have immediate and severe consequences for the Debtors' business. The Debtors operate their four manufacturing facilities on a continuous or near-continuous basis to fulfill customer orders and maintain production schedules. The loss of even a modest number of key Employees—whether production operators, maintenance technicians, quality assurance specialists, or supervisory personnel—could force the Debtors to curtail or cease production at one or more facilities, resulting in the inability to fulfill customer orders, breach of customer contracts, loss of customer relationships, and a corresponding erosion of the going-concern value of the Debtors' estates. The Debtors submit that the preservation of their workforce is, accordingly, a matter of the highest priority in these Chapter 11 cases.
IV. RELIEF REQUESTED
23. By this Motion, the Debtors request entry of an order authorizing, but not directing, the Debtors to pay and honor the following categories of prepetition Employee Obligations in the ordinary course of business, as described in greater detail below.
A. Prepetition Wages, Salaries, and Commissions
24. As of the Petition Date, the Debtors estimate that they owe approximately $3.2 million in accrued but unpaid wages, salaries, and commissions to their Employees for work performed during the prepetition period (the "Prepetition Wages"). The Debtors maintain a bi-weekly payroll cycle for all Employees, with payroll processed and disbursed through the Debtors' payroll system. The Petition Date of June 20, 2022, falls between payroll periods, with the result that Employees have earned but not yet received compensation for work performed during the current pay period.
25. The Prepetition Wages include base wages for hourly Employees, base salaries for salaried Employees, and accrued sales commissions for Employees in the Debtors' sales organization whose compensation includes a commission component. The Debtors' hourly Employees constitute the substantial majority of the Debtors' workforce and are compensated on an hourly basis at rates ranging from approximately $16.50 per hour for entry-level production workers to approximately $38.00 per hour for senior maintenance technicians and skilled operators. Salaried Employees receive bi-weekly salary payments, and commission-eligible Employees receive commissions on a monthly basis (with the most recent commission cycle ending prior to the Petition Date but remaining unpaid as of that date).
26. The Debtors' Employees depend on the timely and regular receipt of their wages and salaries to meet their daily living expenses, including housing, food, transportation, childcare, and other essential needs. Many of the Debtors' Employees—particularly the hourly production workers who constitute the backbone of the Debtors' manufacturing operations—live paycheck to paycheck and have limited financial reserves to absorb any delay or interruption in the payment of their wages. The failure to pay Prepetition Wages promptly would cause immediate and significant financial hardship to these Employees and their families, and would inevitably result in substantial workforce attrition as Employees seek employment with employers who are able to pay them on a timely basis.
27. Each individual Employee's claim for Prepetition Wages is well within the priority cap of $13,650 per individual established under section 507(a)(4) of the Bankruptcy Code (as adjusted for cases commenced after April 1, 2019, in accordance with 11 U.S.C. § 104). Accordingly, the Prepetition Wages constitute priority claims that would be required to be paid in full under any confirmable plan of reorganization pursuant to section 1129(a)(9)(B) of the Bankruptcy Code.
28. The Debtors respectfully request that this Court authorize, but not direct, the Debtors to pay all Prepetition Wages in the ordinary course of business.
B. Health and Welfare Benefits
29. In the ordinary course of their business, the Debtors maintain a comprehensive suite of health and welfare benefit programs for their Employees (collectively, the "Benefit Programs"). The Benefit Programs are a critical component of the Debtors' overall compensation packages and are essential to the Debtors' ability to attract and retain qualified Employees in a competitive labor market. The Benefit Programs include the following:
(a) Medical, Dental, and Vision Insurance. The Debtors offer medical, dental, and vision insurance coverage to eligible Employees and their dependents through group insurance plans administered by third-party insurers and plan administrators. The Debtors pay a significant portion of the monthly premiums for these plans, with Employees responsible for paying the remaining portion through payroll deductions. Medical insurance is provided through BlueCrest Health Plans, Inc.; dental insurance is provided through Quillon Assurance; and vision insurance is provided through Thackeray Group.
(b) Life Insurance and Accidental Death and Dismemberment (AD&D) Coverage. The Debtors provide basic life insurance and AD&D coverage to all eligible Employees at no cost to the Employee, with optional supplemental coverage available for purchase by Employees at their own expense. These benefits are administered through Halcyon Assurance
(c) Short-Term and Long-Term Disability Insurance. The Debtors provide short-term disability ("STD") and long-term disability ("LTD") insurance coverage to eligible Employees. STD benefits provide income replacement for Employees who are temporarily unable to work due to illness or injury, while LTD benefits provide income replacement for Employees who suffer a prolonged disability. These benefits are administered through Calderon Insurance.
(d) Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs). The Debtors offer FSAs and HSAs to eligible Employees, allowing Employees to set aside pre-tax dollars for qualifying medical, dental, and dependent care expenses. FSAs are administered by Greaves Technologies, and HSAs are maintained through Brightwater Capital Management.
(e) Employee Assistance Programs (EAPs). The Debtors provide EAP services to all Employees and their household members, offering confidential counseling, referral services, and support for a range of personal and work-related issues, including mental health, substance abuse, financial stress, and family concerns. The EAP is administered by Aldermere Strategy Partners.
30. As of the Petition Date, the Debtors estimate that they owe approximately $890,000 in accrued but unpaid employer contributions and premium payments in connection with the Benefit Programs for the prepetition period (the "Prepetition Benefit Obligations"). The Prepetition Benefit Obligations include employer premium contributions for medical, dental, and vision insurance; employer premium contributions for life insurance, AD&D, STD, and LTD coverage; employer matching or administrative contributions to FSAs and HSAs; and EAP administrative fees and service charges.
31. The continuation of the Benefit Programs is not merely a matter of competitive necessity; it is required by applicable federal and state law. The Debtors' health and welfare benefit plans are subject to the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), and the Patient Protection and Affordable Care Act (the "ACA"). The Debtors are obligated to maintain group health plan coverage for eligible Employees and to comply with applicable continuation coverage requirements. Failure to do so would expose the Debtors to significant legal liability and regulatory penalties, in addition to causing severe hardship to Employees and their dependents who rely on these benefits for their healthcare needs.
32. The Debtors respectfully request that this Court authorize, but not direct, the Debtors to continue the Benefit Programs in the ordinary course of business and to pay all Prepetition Benefit Obligations owed to plan administrators, insurers, and third-party administrators.
C. Workers' Compensation Obligations
33. The Debtors are required by law to maintain workers' compensation insurance coverage for their Employees in each of the states in which they operate manufacturing facilities—Ohio, Indiana, and Louisiana—in accordance with each state's statutory workers' compensation requirements. Workers' compensation coverage provides benefits to Employees who suffer work-related injuries or illnesses, including medical treatment, wage replacement, and rehabilitation services.
34. In Ohio, the Debtors participate in the Ohio Bureau of Workers' Compensation ("Ohio BWC") state fund program, which is a state-administered monopolistic system. In Indiana and Louisiana, the Debtors maintain workers' compensation insurance coverage through commercial carriers, specifically through policies issued by Severin Life Insurance The Debtors' workers' compensation programs include both premium payments and, in certain cases, self-insured retention ("SIR") obligations that require the Debtors to fund a portion of workers' compensation claims before coverage under the applicable insurance policy is triggered.
35. As of the Petition Date, the Debtors estimate that they owe approximately $215,000 in accrued but unpaid workers' compensation premium obligations and SIR payments attributable to the prepetition period (the "Prepetition WC Obligations"). The Prepetition WC Obligations include estimated premium payments to the Ohio BWC, premium payments to Severin Life Insurance for Indiana and Louisiana coverage, and SIR obligations for pending workers' compensation claims.
36. Maintenance of workers' compensation coverage is not discretionary—it is mandated by statute in each of the states in which the Debtors operate. Failure to maintain workers' compensation coverage could result in the Debtors being ordered to cease operations at one or more manufacturing facilities, the imposition of significant statutory fines and penalties, and potential criminal liability for the Debtors' officers and directors. Moreover, any lapse in workers' compensation coverage would expose the Debtors' estates to potentially significant uninsured liability for work-related injuries.
37. The Debtors respectfully request that this Court authorize, but not direct, the Debtors to continue honoring their workers' compensation obligations in the ordinary course and to pay all Prepetition WC Obligations.
D. Reimbursable Employee Business Expenses
38. In the ordinary course of their business, certain of the Debtors' Employees incur business-related expenses in the performance of their duties, including expenses for business travel (airfare, lodging, ground transportation, and meals), office and production supplies, professional development and continuing education, industry conferences and trade shows, and other miscellaneous business expenses. Employees submit expense reports for reimbursement in accordance with the Debtors' written expense reimbursement policies, which set forth permissible expense categories, documentation requirements, and applicable spending limits. The Debtors' expense reimbursement policies are consistent with industry norms and are designed to ensure that Employees are not required to bear the personal financial burden of expenses incurred on behalf of the Debtors' business.
39. As of the Petition Date, the Debtors estimate that they owe approximately $85,000 in accrued but unpaid reimbursable employee business expenses for the prepetition period (the "Prepetition Expense Reimbursements"). The Prepetition Expense Reimbursements consist primarily of travel and entertainment expenses incurred by sales, operations, and management personnel in connection with customer visits, supplier meetings, and interplant travel among the Debtors' four manufacturing facilities.
40. The Debtors respectfully request that this Court authorize, but not direct, the Debtors to reimburse Prepetition Expense Reimbursements in the ordinary course of business.
E. Payroll Taxes and Withholdings
41. In connection with the compensation of their Employees, the Debtors are required by applicable federal, state, and local law to withhold certain amounts from Employee wages and to remit such amounts, together with the employer's share of applicable payroll taxes, to the appropriate taxing authorities. The payroll taxes and withholdings for which the Debtors are responsible include the following:
(a) Federal Income Tax Withholdings ("FITW"). The Debtors are required to withhold federal income taxes from Employee wages in accordance with the withholding elections set forth on each Employee's Form W-4 and applicable IRS withholding tables.
(b) Federal Insurance Contributions Act ("FICA") Taxes. The Debtors are required to withhold the employee's share of FICA taxes (comprising Social Security tax at a rate of 6.2% on wages up to the applicable wage base and Medicare tax at a rate of 1.45% on all wages, plus the Additional Medicare Tax of 0.9% on wages exceeding $200,000) and to pay the employer's matching share of FICA taxes (6.2% for Social Security and 1.45% for Medicare).
(c) Federal Unemployment Tax Act ("FUTA") Taxes. The Debtors are responsible for the payment of FUTA taxes at the applicable rate on the first $7,000 of each Employee's wages during the calendar year.
(d) State Income Tax Withholdings. The Debtors are required to withhold state income taxes from Employee wages in accordance with the laws of Ohio, Indiana, and Louisiana, as applicable based on each Employee's work location and state of residence.
(e) State and Local Unemployment Taxes ("SUTA"). The Debtors are responsible for the payment of SUTA taxes in Ohio, Indiana, and Louisiana at the applicable employer-specific experience rates.
(f) Local and Municipal Income Tax Withholdings. The Debtors are required to withhold local and municipal income taxes from Employee wages as required by applicable local tax ordinances, including the municipal income taxes imposed by the City of Akron, Ohio, and other Ohio municipalities in which Employees reside or work.
42. Amounts withheld from Employee wages for federal, state, and local income taxes and for the employee's share of FICA taxes constitute trust fund obligations held by the Debtors in trust for the benefit of the applicable taxing authorities. As trust fund obligations, these amounts are not property of the Debtors' bankruptcy estates under section 541 of the Bankruptcy Code. See Begier v. Internal Revenue Service, 496 U.S. 53, 59 (1990) (holding that amounts collected for taxes are held in trust and are not property of the estate).
43. As of the Petition Date, the Debtors estimate that they owe approximately $610,000 in accrued but unremitted payroll tax withholdings and employer payroll tax obligations for the prepetition period (the "Prepetition Payroll Tax Obligations"). The Prepetition Payroll Tax Obligations include both trust fund amounts withheld from Employee wages and the Debtors' employer-side payroll tax obligations.
44. The timely remittance of payroll tax withholdings is not merely a matter of sound business practice—it is a legal imperative. The Internal Revenue Code imposes a trust fund recovery penalty under 26 U.S.C. § 6672 (the "Trust Fund Recovery Penalty") on any "responsible person" who willfully fails to collect, account for, or pay over trust fund taxes. The Trust Fund Recovery Penalty may be assessed against the Debtors' officers and directors in their individual capacities. Analogous personal liability provisions exist under the tax laws of Ohio, Indiana, and Louisiana. Failure to remit withheld taxes in a timely manner would expose the Debtors' officers and directors to significant personal liability and could impair the Debtors' ability to retain key members of their management team during the restructuring process.
45. The Debtors respectfully request that this Court authorize, but not direct, the Debtors to remit all Prepetition Payroll Tax Obligations, including trust fund withholdings and employer payroll tax obligations, in the ordinary course of business.
F. Paid Time Off, Vacation, and Sick Leave
46. The Debtors maintain paid time off ("PTO"), vacation, and sick leave policies for their Employees (the "PTO Policies"). Under the PTO Policies, eligible Employees accrue PTO based on their length of service and employment classification. PTO accrual rates generally range from 10 days per year for Employees with less than three years of service to 25 days per year for Employees with 15 or more years of service. The PTO Policies also provide for sick leave accrual and, for certain Employee classifications, separate vacation accrual.
47. As of the Petition Date, certain Employees have accrued but unused PTO and vacation balances. Under the laws of certain states in which the Debtors operate, accrued but unused PTO and vacation time is considered earned compensation that must be paid out upon an Employee's termination or separation from employment. For example, under Louisiana law, upon termination of employment, an employer is required to pay all amounts due, including accrued vacation, within a specified period. The Debtors' PTO Policies are designed to comply with applicable state law requirements.
48. The Debtors respectfully request that this Court authorize, but not direct, the Debtors to continue honoring their PTO Policies in the ordinary course of business, including the payment of accrued prepetition PTO upon usage or upon an Employee's termination or separation from employment, as required by applicable state law and the terms of the PTO Policies.
G. Summary of Estimated Prepetition Employee Obligations
49. The following table summarizes the Debtors' estimated prepetition Employee Obligations for which relief is sought in this Motion:
50. The Debtors request authority to pay the foregoing Employee Obligations in the ordinary course of business, subject to applicable priority caps under the Bankruptcy Code and the limitations set forth in the Proposed Order. The Debtors submit that the aggregate amount of approximately $5.0 million is reasonable and necessary to maintain the Debtors' workforce and operations during these Chapter 11 cases.
V. BASIS FOR RELIEF
A. Sections 363(b) and 105(a) of the Bankruptcy Code
51. Section 363(b)(1) of the Bankruptcy Code provides, in pertinent part, that "[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C. § 363(b)(1). Courts have uniformly recognized that section 363(b) empowers a debtor in possession to make payments on prepetition claims where such payments are supported by a sound business justification. See, e.g., In re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989); In re Lehigh & New England Ry. Co., 657 F.2d 570, 581 (3d Cir. 1981).
52. Section 105(a) of the Bankruptcy Code provides that "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105(a). This broad equitable power enables the Court to authorize payments of prepetition claims where such payments are necessary to facilitate the successful reorganization of the debtor's business and the preservation of the debtor's estate for the benefit of all stakeholders. See In re Just for Feet, Inc., 242 B.R. 821, 824-25 (D. Del. 1999).
53. Courts routinely authorize the payment of prepetition employee wages and benefits pursuant to sections 363(b) and 105(a) where, as here, such payments are necessary to preserve the debtor's workforce and the going-concern value of the estate. See, e.g., In re Wehrenberg, Inc., No. 20-44561-399 (Bankr. E.D. Mo. 2020); In re Briggs & Stratton Corp., No. 20-43597-svk (Bankr. E.D. Wis. 2020); In re Pyxus Int'l, Inc., No. 20-33495 (Bankr. M.D.N.C. 2020). Indeed, motions for authority to pay prepetition employee wages and benefits are among the most commonly filed "first day" motions in Chapter 11 cases, and courts consistently grant such relief upon a showing that payment is necessary to maintain the debtor's operations and employee morale during the restructuring process.
54. The "doctrine of necessity," sometimes referred to as the "necessity of payment" doctrine, provides an additional and well-established basis for the relief sought herein. Under this doctrine, a court may authorize payment of prepetition claims where such payments are essential to the continued operation of the debtor's business. See In re Lehigh & New England Ry. Co., 657 F.2d at 581 ("The necessity of payment doctrine permits a court to authorize a debtor in possession or a trustee to pay pre-reorganization claims where such payment is essential to the continued operation of the debtor."); In re CoServ, L.L.C., 273 B.R. 487, 497 (Bankr. N.D. Tex. 2002). The doctrine recognizes that, in certain circumstances, the strict application of the priority scheme established by the Bankruptcy Code would be counterproductive and would actually diminish the value of the estate available for distribution to all creditors.
55. Here, the payment of the Employee Obligations satisfies the business judgment standard applicable to transactions under section 363(b). The Debtors' management, in the exercise of their sound business judgment, has determined that the payment of the Employee Obligations is necessary to (a) retain the Debtors' approximately 1,420 Employees, who are essential to the continued operation of the Debtors' four manufacturing facilities; (b) maintain Employee morale during the Chapter 11 process; (c) avoid disruption to the Debtors' manufacturing operations, which would impair the Debtors' ability to fulfill customer orders and generate revenue; and (d) preserve the going-concern value of the Debtors' estates for the benefit of all stakeholders. The Debtors' management further believes, in its sound business judgment, that any failure or delay in the payment of the Employee Obligations would result in significant and irreparable harm to the Debtors' business and estates.
B. Priority Treatment Under Sections 507(a)(4) and 507(a)(5)
56. The relief requested herein is further supported by the priority treatment accorded to employee wage and benefit claims under the Bankruptcy Code. Section 507(a)(4) of the Bankruptcy Code provides fourth-priority status for "allowed unsecured claims . . . for wages, salaries, or commissions, including vacation, severance, and sick leave pay," earned within 180 days before the date of the filing of the petition or the date of cessation of the debtor's business (whichever occurs first), to the extent of $13,650 per individual (as adjusted effective April 1, 2019). 11 U.S.C. § 507(a)(4).
57. Section 507(a)(5) of the Bankruptcy Code provides fifth-priority status for "allowed unsecured claims for contributions to an employee benefit plan . . . arising from services rendered within 180 days before the date of the filing of the petition or the date of cessation of the debtor's business, whichever occurs first," subject to a per-employee cap of $13,650, reduced by the amount paid to such employee under section 507(a)(4). 11 U.S.C. § 507(a)(5).
58. The prepetition Employee Obligations for which the Debtors seek payment authority in this Motion were earned within 180 days before the Petition Date and fall within the per-employee priority caps established under sections 507(a)(4) and 507(a)(5). Accordingly, these claims are entitled to priority treatment and would ultimately be required to be paid in full under any confirmable plan of reorganization. Section 1129(a)(9)(B) of the Bankruptcy Code requires that, as a condition of confirmation, a plan must provide for the payment in full of all priority claims under sections 507(a)(4) and 507(a)(5), unless the holder of a particular claim agrees to different treatment. 11 U.S.C. § 1129(a)(9)(B).
59. Because the Employee Obligations constitute priority claims that must be paid in full under any confirmable plan, authorizing payment now—rather than deferring payment until plan confirmation—advances the interests of the estates and all stakeholders. Prompt payment avoids the administrative burden and expense of tracking, reconciling, and eventually paying thousands of individual priority claims during the plan confirmation process. More importantly, prompt payment retains the Debtors' workforce, preserves going-concern value, and facilitates the successful reorganization of the Debtors' business—all of which inure to the benefit of the estates and all creditors.
C. Trust Fund Obligations
60. As set forth above, payroll tax withholdings—including federal, state, and local income tax withholdings and the employee's share of FICA taxes—are held by the Debtors in trust for the benefit of the applicable taxing authorities. These amounts are not property of the Debtors' bankruptcy estates. See Begier v. Internal Revenue Service, 496 U.S. 53, 59 (1990); see also City of Farrell v. Sharon Steel Corp., 41 F.3d 92, 95-96 (3d Cir. 1994) (recognizing that trust fund taxes are not property of the estate).
61. The Debtors have a fiduciary obligation to remit withheld payroll taxes to the appropriate taxing authorities in a timely manner. Failure to remit trust fund taxes exposes the Debtors' officers and directors to personal liability under the Trust Fund Recovery Penalty provisions of 26 U.S.C. § 6672, as well as analogous state law provisions. Under section 6672, any person who is required to collect, truthfully account for, and pay over any tax imposed by the Internal Revenue Code, and who willfully fails to do so, is liable for a penalty equal to the total amount of the tax not collected, accounted for, or paid over. The penalty is assessed against the "responsible person" individually, not against the corporate entity, and survives the bankruptcy of the corporate debtor.
62. In light of the foregoing, the Court should authorize the remittance of all trust fund tax obligations as a matter of course. Because these amounts are not property of the estate, their remittance does not diminish the value of the estate or prejudice any creditor. To the contrary, failure to remit trust fund taxes would expose the Debtors' officers and directors to personal liability, potentially impairing the Debtors' ability to retain key management personnel at a critical juncture in the restructuring process.
D. Necessity to Preserve Going-Concern Value
63. The overarching rationale for the relief sought in this Motion is the preservation of the going-concern value of the Debtors' estates. The Debtors' approximately 1,420 Employees are the principal driver of that going-concern value. The Debtors' Employees operate four manufacturing plants, maintain complex production equipment, ensure compliance with rigorous environmental, health, and safety regulations, manage customer relationships, and perform the myriad other functions upon which the Debtors' business depends.
64. The loss of key Employees—whether production operators, maintenance technicians, quality assurance specialists, engineers, plant managers, or administrative personnel—would have an immediate and cascading impact on the Debtors' operations. Specifically, Employee attrition would impair the Debtors' ability to:
(a) maintain production schedules at the Debtors' four manufacturing facilities;
(b) satisfy existing customer orders and contractual commitments;
(c) comply with DOT, EPA, OSHA, and other applicable environmental, health, and safety regulations;
(d) maintain the quality and safety standards required for the Debtors' chemical packaging and containment products;
(e) operate and maintain complex extrusion, blow molding, and fabrication equipment; and
(f) preserve customer and supplier relationships that are essential to the Debtors' ongoing operations.
65. The consequences of significant Employee attrition would be severe and potentially irreversible. Customer relationships developed over years or decades could be lost. Manufacturing expertise embodied in the Debtors' skilled workforce could dissipate. The Debtors' ability to generate revenue and maintain cash flow during the restructuring process would be severely compromised. Ultimately, the going-concern value of the Debtors' estates—which is the foundation upon which the Prepackaged Plan is built—would be materially diminished.
66. The Debtors further note that the DIP Budget approved on an interim basis in connection with the Debtors' motion for authority to obtain debtor-in-possession financing (the "DIP Motion") contemplates the continued payment of Employee Obligations in the ordinary course of the Debtors' business. The DIP lenders, in agreeing to provide postpetition financing to the Debtors, did so with the understanding and expectation that the Debtors would maintain their workforce and continue to operate their business as a going concern during the Chapter 11 cases. The relief sought in this Motion is entirely consistent with the DIP Budget and the DIP lenders' expectations.
E. Authorization for Banks to Honor Payment Requests
67. To ensure the efficient and timely payment of the Employee Obligations authorized by this Motion, the Debtors request that this Court authorize and direct all applicable banks and financial institutions to receive, process, honor, and pay any and all checks drawn on, or electronic payment requests (including ACH transfers, wire transfers, and other electronic fund transfers) submitted to, the Debtors' bank accounts in connection with the Employee Obligations authorized to be paid pursuant to this Motion, to the extent the Debtors have sufficient funds on deposit in the applicable accounts.
68. The Debtors maintain their primary operating accounts at Ridgeline National Bank, N.A. (the "Bank"), which serves as the Debtors' primary depository institution. The Debtors' payroll processing is administered through Ashgrove Solutions ("Larkspur Systems"), which processes payroll disbursements through the Debtors' accounts at the Bank. The Debtors request that the Bank, Larkspur Systems, and any other applicable banks and financial institutions be authorized and directed to honor and process all payment requests related to the Employee Obligations authorized by this Motion, without further order of this Court, and that such institutions not be liable to any party for doing so in good faith and in reliance upon the order entered on this Motion.
VI. WAIVER OF MEMORANDUM REQUIREMENT
69. The Debtors respectfully request that the Court waive any applicable requirement under the Local Rules of the United States Bankruptcy Court for the Northern District of Ohio or any other applicable rule or order requiring the filing of a separate memorandum of law in support of this Motion. The relief requested herein is of the type routinely granted by bankruptcy courts in Chapter 11 cases on a first day basis, the legal bases for such relief are well established, and the urgent nature of the relief sought—necessitated by the risk of immediate and irreparable harm to the Debtors' workforce and business operations—counsels in favor of prompt consideration of this Motion without the delay that would be occasioned by the preparation and filing of a separate memorandum.
VII. NOTICE
70. Notice of this Motion has been provided to the following parties or, where applicable, their counsel:
(a) The Office of the United States Trustee for Region 9, Howard M. Metzenbaum U.S. Courthouse, 201 Superior Avenue, Cleveland, Ohio 44114;
(b) Ridgeline National Bank, N.A., in its capacity as administrative agent under the First Lien Credit Agreement and as DIP agent under the DIP Facility, 200 Public Square, Cleveland, Ohio 44114, Attention: Loan Administration Department;
(c) Hargrove, Mitchell & Saunders LLP, as counsel to the Ad Hoc Group of First Lien Lenders, 51 West 52nd Street, New York, New York 10019, Attention: Victoria Kline, Esq.;
(d) Pemberton & Locke LLP, as counsel to the Ad Hoc Group of Second Lien Noteholders, 1 Liberty Plaza, New York, New York 10006, Attention: Raymond Delvecchio, Esq.;
(e) Continental Fiduciary Trust Company, as indenture trustee under the Second Lien Indenture, 101 Barclay Street, New York, New York 10286; and
(f) All other parties entitled to notice pursuant to Bankruptcy Rule 4001, Bankruptcy Rule 9013, and the applicable Local Rules of this Court.
71. The Debtors submit that the foregoing notice is sufficient under the circumstances and that no further or other notice of this Motion is required or necessary.
VIII. NO PRIOR REQUEST
72. No prior request for the relief sought in this Motion has been made to this or any other court.
IX. CONCLUSION AND PRAYER FOR RELIEF
WHEREFORE, the Debtors respectfully request that this Court enter an order, substantially in the form attached hereto as Exhibit A:
(a) Authorizing, but not directing, the Debtors to pay all prepetition wages, salaries, and commissions owed to Employees in the ordinary course of business, in an aggregate amount not to exceed $3.2 million;
(b) Authorizing, but not directing, the Debtors to continue Employee health and welfare benefit programs in the ordinary course of business and to pay all prepetition amounts owed in connection therewith, in an aggregate amount not to exceed $890,000;
(c) Authorizing, but not directing, the Debtors to honor all prepetition workers' compensation obligations, in an aggregate amount not to exceed $215,000;
(d) Authorizing, but not directing, the Debtors to reimburse all prepetition employee business expenses in the ordinary course of business, in an aggregate amount not to exceed $85,000;
(e) Authorizing, but not directing, the Debtors to remit all prepetition payroll tax withholdings and to pay all employer payroll tax obligations in the ordinary course of business, in an aggregate amount not to exceed $610,000;
(f) Authorizing, but not directing, the Debtors to honor accrued PTO, vacation, and sick leave policies in the ordinary course of business consistent with prepetition policies and applicable state law;
(g) Authorizing and directing all applicable banks and financial institutions, including Ridgeline National Bank, N.A., to receive, process, honor, and pay any and all checks drawn on, or electronic payment requests submitted to, the Debtors' accounts in connection with the Employee Obligations authorized to be paid by this Motion;
(h) Waiving any applicable requirement for the filing of a separate memorandum of law in support of this Motion; and
(i) Granting such other and further relief as this Court deems just and proper.
Dated: June 20, 2022 Akron, Ohio
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Colette Whitman (NY Bar No. 4512887) Nathaniel Bower (NY Bar No. 4738201) Gabrielle Moss (NY Bar No. 5329104) Amy Chesterton (NY Bar No. 5481762) 30 Rockefeller Plaza New York, New York 10112 Telephone: (212) 558-4000 Facsimile: (212) 558-3588
— and —
127 Public Square, Suite 4100 Cleveland, Ohio 44114 Telephone: (216) 479-8500 Facsimile: (216) 479-8780
Counsel to the Debtors and Debtors in Possession
KELLNER & HARTWICK LLP
By: ________
Bruce Tatelman (OH Bar No. 0068342) 600 Superior Avenue East, Suite 1800 Cleveland, Ohio 44114 Telephone: (216) 621-0200 Facsimile: (216) 241-2824
Local Co-Counsel to the Debtors and Debtors in Possession
EXHIBIT A
PROPOSED ORDER
UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION
ORDER AUTHORIZING, BUT NOT DIRECTING, THE DEBTORS TO (I) PAY PREPETITION EMPLOYEE WAGES, SALARIES, AND COMMISSIONS, (II) CONTINUE EMPLOYEE BENEFITS PROGRAMS, (III) PAY PREPETITION WORKERS' COMPENSATION OBLIGATIONS, (IV) REIMBURSE EMPLOYEE BUSINESS EXPENSES, AND (V) PAY ALL RELATED PAYROLL TAXES AND WITHHOLDINGS
Upon the motion (the "Motion")^2 of Crestline Packaging Solutions LLC and CPS Holdings Inc., as debtors and debtors in possession (collectively, the "Debtors"), for entry of an order authorizing, but not directing, the Debtors to (i) pay prepetition employee wages, salaries, and commissions, (ii) continue employee benefits programs and pay prepetition amounts owed in connection therewith, (iii) pay prepetition workers' compensation obligations, (iv) reimburse prepetition employee business expenses, and (v) pay all related payroll taxes and withholdings, all as more fully set forth in the Motion; and the Court having considered the Motion, the Declaration of Dana Kowalski, Chief Financial Officer of Crestline Packaging Solutions LLC, filed in support of the Debtors' first day motions (the "Kowalski Declaration"), any objections thereto, and the arguments of counsel, if any; and the Court having found that (a) the Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334, (b) this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2), (c) venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409, and (d) adequate and sufficient notice of the Motion has been provided under the circumstances, and no other or further notice need be given; and the Court having determined that the legal and factual bases set forth in the Motion and the Kowalski Declaration establish just cause for the relief granted herein; and after due deliberation and good and sufficient cause appearing therefor,
^2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Motion.
IT IS HEREBY ORDERED THAT:
1. The Motion is GRANTED as set forth herein.
2. The Debtors are authorized, but not directed, to pay all accrued and unpaid prepetition wages, salaries, and commissions owed to their Employees in the ordinary course of business, in an aggregate amount not to exceed $3,200,000, provided that no individual Employee shall receive payment on account of prepetition wage, salary, or commission claims in excess of the applicable priority cap established under section 507(a)(4) of the Bankruptcy Code (currently $13,650 per individual, as adjusted).
3. The Debtors are authorized, but not directed, to continue their health and welfare benefit programs in the ordinary course of business and to pay all accrued and unpaid prepetition amounts owed to plan administrators, insurers, and third-party administrators in connection therewith, in an aggregate amount not to exceed $890,000.
4. The Debtors are authorized, but not directed, to honor all prepetition workers' compensation obligations, including premium payments and self-insured retention payments, in the ordinary course of business, in an aggregate amount not to exceed $215,000.
5. The Debtors are authorized, but not directed, to reimburse all accrued and unpaid prepetition employee business expenses in the ordinary course of business, in an aggregate amount not to exceed $85,000.
6. The Debtors are authorized, but not directed, to remit all accrued and unremitted prepetition payroll tax withholdings and to pay all accrued and unpaid employer payroll tax obligations for the prepetition period in the ordinary course of business, in an aggregate amount not to exceed $610,000.
7. The Debtors are authorized, but not directed, to honor accrued paid time off, vacation, and sick leave obligations in the ordinary course of business consistent with the Debtors' prepetition policies and applicable state law.
8. All applicable banks and financial institutions, including without limitation Ridgeline National Bank, N.A., are authorized and directed to receive, process, honor, and pay any and all checks drawn on, or electronic payment requests (including ACH transfers, wire transfers, and other electronic fund transfers) submitted to, the Debtors' bank accounts in connection with the Employee Obligations authorized to be paid by this Order, to the extent the Debtors have sufficient funds on deposit in the applicable accounts. No bank or financial institution that honors or processes any such payment in good faith and in reliance upon this Order shall have any liability to any party for doing so.
9. Nothing in this Order shall be deemed or construed as (a) an admission as to the validity, priority, or amount of any claim against the Debtors, (b) a waiver of the Debtors' or any other party in interest's right to dispute any claim on any grounds, (c) a promise or requirement that the Debtors continue to employ any particular Employee, or (d) an implication that any claim is entitled to priority or other treatment beyond what is expressly provided in this Order and the Bankruptcy Code.
10. The Debtors are authorized to take all actions and to execute all documents and instruments as may be reasonably necessary or appropriate to implement the terms of this Order.
11. Notwithstanding Bankruptcy Rule 6004(h), this Order shall be effective immediately upon entry and shall not be stayed for fourteen (14) days.
12. This Court retains exclusive jurisdiction over all matters arising from or related to the implementation, interpretation, and enforcement of this Order.
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Dated: June _, 2022 Akron, Ohio
________________________________________
UNITED STATES BANKRUPTCY JUDGE
In re: | Chapter 11
CRESTLINE PACKAGING SOLUTIONS LLC, et al.,^1 | Case No. 22-51247
Debtors. | (Jointly Administered)
Category | Estimated Amount
Wages, Salaries, and Commissions | $3,200,000
Health and Welfare Benefits | $890,000
Workers' Compensation | $215,000
Expense Reimbursements | $85,000
Payroll Taxes and Withholdings | $610,000
Aggregate Estimated Amount | $5,000,000
In re: | Chapter 11
CRESTLINE PACKAGING SOLUTIONS LLC, et al.,^1 | Case No. 22-51247
Debtors. | (Jointly Administered)

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

I. PRELIMINARY STATEMENT

II. JURISDICTION AND VENUE

III. BACKGROUND

IV. RELIEF REQUESTED

V. BASIS FOR RELIEF

VI. WAIVER OF MEMORANDUM REQUIREMENT

VII. NOTICE

VIII. NO PRIOR REQUEST

IX. CONCLUSION AND PRAYER FOR RELIEF

CALDERWOOD & HARKNESS LLP

KELLNER & HARTWICK LLP

EXHIBIT A

PROPOSED ORDER

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

IT IS HEREBY ORDERED THAT:

UNITED STATES BANKRUPTCY JUDGE

Record

Parties

Dates

Amounts