Top executives at some companies received $ 165 million in bonuses before filing for bankruptcy last year, according to a Government Accountability Office (GAO) report.
The published report at the end of last month examined 7,300 companies that filed for Chapter 11 bankruptcy during fiscal year 2020.
None of the companies sought court approval for executive retention bonuses during bankruptcy.
However, the report found that 42 debtors gave executives $ 165 million in pre-bankruptcy retention bonuses five months to two days before filing.
Under Section 503 (c) of the United States Bankruptcy Code, Chapter 11 debtors are not permitted to pay retention bonuses to executives to remain bankrupt and incentive bonuses to meet certain performance targets. Typically, debtors must obtain court approval to pay premiums in file bankruptcy online.
Some attorneys told GAO that debtors are using pre-bankruptcy bonuses as a workaround because awarding executive retention bonuses during bankruptcy is nearly impossible.
Only 70 companies have applied for permission to pay employee bonuses, GAO found, all of which were approved. Debtors have awarded a total of $ 571 million to more than 16,600 managerial and non-managerial employees through court-approved bonuses.
The GAO recommended that Congress consider amending the Bankruptcy Code to require that bonuses deposited before bankruptcy be subject to court oversight.
Several companies made headlines last year for handing out large bonuses just as they filed for bankruptcy. Chuck E. Cheese, Hertz and Neiman Marcus were all among the companies that granted such bonuses, CBS News Noted.