Bill launched in Congress to finish government bonuses in chapter

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  • Execs making over $250,000 per yr 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 launched a invoice within the U.S. House of Representatives to finish bonuses awarded each earlier than and through bankruptcies for executives who make greater than $250,000 per yr.

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 launched Tuesday is meant to stop prime officers from taking dwelling further compensation whereas lower-level staff are laid off because of the chapter.

“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 launched the invoice, the No Bonuses in Bankruptcy Act, in 2019 and is revamping it now following a report from the Government Accountability Office that present in fiscal yr 2020, $165 million in bonuses had been paid to 223 executives throughout 42 corporations shortly earlier than they filed for chapter. The report, which she commissioned, additionally discovered $207 million in incentive bonuses had been approved for 309 executives throughout 47 corporations throughout their bankruptcies.

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

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

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

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

Earlier this yr, Representative Greg Steube, a Republican from Florida, launched an identical invoice that might bar fee of government bonuses earlier than a chapter. Separately, payments within the House and U.S. Senate geared toward curbing sure company chapter practices on a broader stage, together with authorized protections for a bankrupt firm’s officers and administrators, have additionally been proposed.

Proponents of these kind of government bonuses have argued that they’re essential to hold administration with institutional data from leaving the corporate throughout a chapter. They say the executives are important to making sure a profitable restructuring. But Bustos stated they shouldn’t be rewarded if their corporations have been positioned in chapter.

“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 dam judge-shopping in chapter

With diminishing pushback, government bonuses in chapter veer towards ‘entitlement’

On eve of chapter, U.S. companies bathe execs with bonuses

Maria Chutchian

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

A view of Capitol Hill in Washington August 1, 2011. REUTERS/Joshua Roberts