Bill introduced in Congress to end executive bonuses in bankruptcy

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

  • Executives earning more than $ 250,000 per year would be excluded from bonuses
  • Bill follows report of $ 165 million in bonuses paid before Chapter 11

(Reuters) – A Democratic congresswoman from Illinois introduced a bill in the United States House of Representatives to end bonuses given before and during bankruptcy for executives who earn more than $ 250,000 per year.

Representative Cheri Bustos, who was joined by Republican Representative from Tennessee Tim Burchett to sponsor the invoice, said in an interview with Reuters that legislation introduced on Tuesday is aimed at preventing top executives from receiving additional pay while lower-level employees are laid off as a result of the bankruptcy.

“It’s a matter of fairness and it’s about looking after these workers and making sure those at the top don’t get a bonus for working primarily in a company that has filed for bankruptcy. “she said.

Bustos originally introduced the bill, the No Bonus in Bankruptcy Act, in 2019 and is now reorganizing it following a report of the Government Accountability Office which found that in fiscal 2020, $ 165 million in bonuses was paid to 223 executives of 42 companies shortly before they filed for bankruptcy. The report, which she commissioned, also found that $ 207 million in incentive bonuses had been authorized for 309 executives at 47 companies during their bankruptcies.

Hertz Global Holdings Inc grabbed the headlines last year by disbursing $ 16 million in bonuses days before filing for Chapter 11 protection. Other recent high profile bankruptcies, including that of Purdue Pharma, have also obtained court approval for executive incentive plans worth millions of dollars during their bankruptcies.

In Chapter 11 cases, executives are generally not allowed to receive loyalty bonuses, but may receive incentive bonuses. To get court approval for incentive bonus plans, companies must convince the judge in charge of the case that executives will need to meet certain goals to improve the company’s restructuring process.

In addition to preventing executives earning more than $ 250,000 a year from receiving bonuses when their companies go bankrupt, the bill would allow the US Department of Justice’s bankruptcy watchdog, the US Trustee , to recover the bonuses paid during the six months preceding the filing of the bankruptcy if the bonus would not have been authorized during the case.

When introduced in 2019, the bill had 14 co-sponsors, including Burchett.

Earlier this year, Representative Greg Steube, a Republican from Florida, introduced a similar bill that would ban the payment of executive bonuses before bankruptcy. Separately, bills in the United States House and Senate aimed at curbing certain corporate bankruptcy practices at a broader level, including legal protections for officers and directors of a bankrupt company, have been adopted. also been proposed.

Proponents of these types of executive bonuses have argued that they are necessary to prevent management with institutional knowledge from leaving the company during a bankruptcy. They say executives are essential to ensure successful restructuring. But Bustos said they shouldn’t be rewarded if their companies go bankrupt.

“We have to make sure that regardless of whether you’ve driven this business out of business, are now in C-suite, and this business has filed for bankruptcy, you shouldn’t be allowed to get these bonuses,” he said. she declared.

Read more:

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On the eve of bankruptcy, US companies shower executives with bonuses

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