Recently, in GSE Environmental, Inc. v. Sorrentino (In re GSE Environmental, Inc.), on a motion for judgment on the pleadings, the Bankruptcy Court for the District of Delaware held that the Chief Executive Officer’s claim for unpaid compensation payable in stock constituted an equity security rather than a general unsecured claim. The facts of GSE Environmental are an all too familiar story in the bankruptcy context: Company files for chapter 11, but certain employees, or in this case executives, were not paid their full compensation before the petition date. Whether such unpaid compensation is treated as a general unsecured claim or equity securities can have a tangible effect on the employee’s recovery in the case. GSE Environmental serves as one example of a variation of unpaid compensation that may be treated as an equity security.

Background

Charles Sorrentino served as interim president and CEO to the debtors, GSE Environmental, Inc. and GSE Holding, Inc., as of July 1, 2013. Pursuant to his original employment agreement, Sorrentino was earning $186,000 per month payable in cash. A month later, the parties amended his agreement to provide that $100,000 of Sorrentino’s monthly compensation would