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Bill introduced in Congress to end executive bonuses in bankruptcy

  • Execs making over $250,000 per 12 months can be barred from bonuses
  • Bill follows report of $165 million in bonuses paid earlier than Chapter 11

(Reuters) – A Democratic Congresswoman from Illinois has introduced a invoice in the U.S. House of Representatives to end bonuses awarded each earlier than and through bankruptcies for executives who make greater than $250,000 per 12 months.

Representative Cheri Bustos, who was joined by Tennessee Republican Representative Tim Burchett in sponsoring the bill, stated in an interview with Reuters that the laws introduced Tuesday is meant to forestall high officers from taking dwelling further compensation whereas lower-level staff are laid off on account of the bankruptcy.

“It’s about fairness and it’s about looking out for those workers and making sure that those at the very top don’t get a bonus for basically working at a company that’s filed (for)bankruptcy,” she stated.

Bustos initially introduced the invoice, the No Bonuses in Bankruptcy Act, in 2019 and is revamping it now following a report from the Government Accountability Office that discovered in fiscal 12 months 2020, $165 million in bonuses had been paid to 223 executives throughout 42 firms shortly earlier than they filed for bankruptcy. The report, which she commissioned, additionally discovered $207 million in incentive bonuses had been licensed for 309 executives throughout 47 firms throughout their bankruptcies.

Hertz Global Holdings Inc made headlines final 12 months by shelling out $16 million in bonuses days earlier than it sought Chapter 11 safety. Other latest high-profile bankruptcies, together with Purdue Pharma’s, have secured courtroom approval for executive incentive plans value hundreds of thousands of {dollars} throughout their bankruptcies as effectively.

In Chapter 11 circumstances, executives are usually not permitted to obtain retention bonuses however will be awarded incentive bonuses. To receive courtroom approval of incentive bonus plans, the businesses should persuade the choose overseeing the case that the executives could have to meet sure objectives to improve the corporate’s restructuring course of.

In addition to blocking executives making greater than $250,000 per 12 months from receiving bonuses throughout their firm’s bankruptcy, the invoice would enable the U.S. Department of Justice’s bankruptcy watchdog, the U.S. Trustee, to claw again bonuses paid in the six months earlier than the bankruptcy was filed if the bonus wouldn’t have been allowed in the course of the case.

When initially introduced in 2019, the invoice had 14 co-sponsors, together with Burchett.

Earlier this 12 months, Representative Greg Steube, a Republican from Florida, introduced the same invoice that might bar cost of executive bonuses earlier than a bankruptcy. Separately, payments in the House and U.S. Senate geared toward curbing sure company bankruptcy practices on a broader degree, together with authorized protections for a bankrupt firm’s officers and administrators, have additionally been proposed.

Proponents of some of these executive bonuses have argued that they’re needed to maintain administration with institutional information from leaving the corporate throughout a bankruptcy. They say the executives are important to making certain a profitable restructuring. But Bustos stated they shouldn’t be rewarded if their firms have been positioned in bankruptcy.

“We ought to make sure that whether you have led that company into bankruptcy, whether you are now at the C-suite and that company has filed for bankruptcy, that you should not be allowed to be getting these bonuses,” she stated.

Read extra:

Warren, Cornyn introduce invoice to block judge-shopping in bankruptcy

With diminishing pushback, executive bonuses in bankruptcy veer towards ‘entitlement’

On eve of bankruptcy, U.S. corporations bathe execs with bonuses

Maria Chutchian

Maria Chutchian experiences on company bankruptcies and restructurings. She will be reached at maria.chutchian@thomsonreuters.com.

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