CBS News Speaks to Bankruptcy Expert Professor Greg Germain About Executive Bonuses
Bankrupt companies gave $165 million in bonuses to top execs before going belly up last year
(CBS News | Oct. 7, 2021) Chuck E. Cheese, Hertz and J.C. Penney are three very different companies but share one thing in common: oddly timed executive bonuses before their corporate bankruptcy filings.
Each company gave its top executives a pay bonus last year just before declaring Chapter 11 bankruptcy. So did Neiman Marcus, as well as oil companies Whiting Petroleum and Chesapeake Energy. All told, 42 companies awarded millions of dollars in so-called "retention" bonuses in the days leading up to their bankruptcies, the Government Accountability Office, or GAO, found in a new report ...
... In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act, which greatly limited debtor companies' ability to give out executive and worker retention bonuses without a bankruptcy judge's blessing. The bankruptcy rules, however, do not regulate what a company can do before it files for bankruptcy, said Gregory Germain, a bankruptcy expert and law professor at Syracuse University.
Out of 7,300 companies that filed for bankruptcy last year, none asked for a judge's approval for retention bonuses, the GAO found. Instead, many gave the bonuses beforehand.
Congress can fix this by passing a new rule, Germain said ...