Counsel: Remember to Take a Look at the C-Suite

31 July 2018 Legal News: Bankruptcy & Business Reorganizations Publication
Authors: Sharon M. Beausoleil

Recent events involving the former chief executive officer of Energy XXI serve as a reminder that chapter 11 counsel, committees and committee counsel should take a closer look at the C-suite. This is especially true when a management incentive plan is being proposed and/or releases are being provided to executive management. Counsel should make sure that they have an understanding of prior company investigations, the executive employment agreements, and the expense reimbursement process.

On July 16, 2018, the Securities and Exchange Commission (SEC) announced a settlement with John Schiller, the former chief executive officer of Energy XXI Gulf Coast, Inc. (EGC).1 The SEC identified improper and undisclosed loans as well as undisclosed compensation. The SEC asserted that Mr. Schiller, while CEO of Energy XXI, Ltd. (EXXI), had signed definitive proxy statements containing false or misleading statements, and as per the SEC, these activities violated the securities laws.


In a 2015 10-k filing, EXXI disclosed that Schiller had taken improper loans from personal acquaintances or their affiliates who provided services to the company. Schiller also took a personal loan from an individual who later became a board member. None of the personal loans were disclosed to the board. EXXI further indicated that its initial investigation did not uncover illegal activity, but the loans were improper under the company’s code of conduct. The end result was EXXI announced that it would strengthen its corporate governance controls.2

In April 2016, EXXI and its affiliates filed for bankruptcy relief under chapter 11. As part of the plan of reorganization, EXXI was dissolved in accordance with Bermuda law. EGC and certain affiliates emerged as the reorganized debtors. In EGC’s plan, which was confirmed in December 2016, Mr. Schiller was named as the CEO of EGC.3 As CEO, he was entitled to receive stock and other consideration as part of the management incentive plan. Yet, two months later, in February 2017, Mr. Schiller was removed by the board.4

In the July 2018 complaint,5 the SEC alleged that Mr. Schiller violated the securities laws by failing to disclose these loans. The SEC also alleged that Mr. Schiller failed to disclose numerous items as compensation for the period 2012 through 2016 in EXXI’s definitive proxy statements, which also violated securities laws. These items included the private bar in the executive suite offices, legal fees for personal matters, first-class travel for family members, and other expenses.

EGC issued a press release,6 pointing out that such events took place prior to the filing of the bankruptcy in April 2016. However, EGC also indicated that since it emerged from bankruptcy in December 2016, it had moved to enhance corporate governance in the same areas in which Mr. Schiller got into trouble (vendor procurement, conflicts of interest, pledging securities, gift, travel, and entertainment expenses).

Take Away

Debtors’ counsel as well as committee counsel should review prior investigations as it concerns the C-suite and the implementation of enhanced corporate governance controls. This is a balancing act for Debtors’ professionals who are likely hired by the same officers and must also present management to the court in any number of hearings. On the other hand, statutory committees have a duty to investigate the debtor under Section 1103(c)(2) of the Bankruptcy Code. Committee counsel therefore may be the best situated professionals to undertake this investigation. Counsel also should review the SEC filings, including 8-ks and the recent 10-ks, board minutes, minutes of special committees, and D&O notifications and claims. Counsel also should understand the executive employment agreement, including the manner in which expenses are paid.


1See Olivia Pulsinelli, “Former Houston energy co. CEO, board member settle charges with SEC,” Houston Business Journal, July 16, 2018 (; see also Dave Michaels, “Former Energy XXI CEO Settles SEC Probe Over Hidden Loans, Perks,” The Wall Street Journal, July 16, 2018 (

2See Olivia Pulsinelli. “Energy company investigates loans borrowed by CEO,” Houston Business Journal, October 1, 2015 (

3See Findings of Fact, Conclusions of Law and Order Confirming the Debtors’ Second Amended Joint Chapter 11 Plan of Reorganization [Dkt No. 1809] in Case No. 16-31928, In re Energy XXI, Ltd., et al. (in the United States Bankruptcy Court for the Southern District of Texas).

4See David Michaels, “Former Energy XXI CEO Settles SEC Probe Over Hidden Loans, Perks,” The Wall Street Journal, July 16, 2018 (

5See Securities and Exchange Commission v. John D. Schiller, Jr., Case No. 4:18-cv-02433, (in the United States District Court for the Southern District of Texas) (

6See Energy XXI Gulf Coast, Inc. Provides Comments on Today’s Announcement by the Securities and Exchange Commission Regarding Charges Against the Former Chief Executive Officer and a Board Member of the Predecessor Company Energy XXI Ltd [press release]. Retrieved from

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