The coronavirus recession tipped dozens of troubled companies into bankruptcy, setting off a rush of store closures, furloughs and layoffs. But several major brands, including Hertz Global, J.C. Penney and Neiman Marcus, doled out millions in executive bonuses just before filing for Chapter 11 protection, according to a Washington Post analysis of regulatory filings and court documents.
Since the pandemic took hold in March, at least 18 large companies have rewarded executives with six- and seven-figure payouts before asking bankruptcy courts to shield them from landlords, suppliers and other creditors while they restructured, the Post review found. They collectively meted out more than $135 million, documents show, while listing $79 billion in debts.
Labor experts and bankruptcy attorneys say the payouts are particularly egregious — and unjustifiable — during an economic crisis, and were timed to bypass a 2005 law passed specifically to prevent executives from prospering while their companies flailed. . . .
Chuck E. Cheese’s parent company filed for bankruptcy, citing $2 billion in debt. But first it awarded nearly $3 million in bonuses to top executives, including $1.3 million to chief executive David McKillips, who had been with the company less than five months.
Tuesday, October 27, 2020
In a Pandemic, Sleazy Business as Usual
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When a company does well, the people at the top are both the first to reap the rewards, and the ones who profit the most.
But when a company does badly, those same people are the last to suffer losses, and the ones who lose the least.
That must change. If you expect to be first in line to profit when things go well, you also need to be first in line to lose when things go badly.
Corporate owners, executives, and investors are all too happy to bear the brunt of the responsibility when taking risks pays off, but the moment things turn sour, suddenly it's the workers who are responsible and paying the price. Employees get their bonuses cut, or their wages cut, or even lose their jobs entirely, while executives get raised. It's flagrantly immoral, and it should be equally illegal.
When a company fails, it should be the workers who get paid first, guaranteed by the force of law to be fully paid the wages and benefits and everything else that they are due before any executive, owner, or investor receives a single cent.
As I understand it, such payments are scrutinized by creditors and bankruptcy judges, and any payments -- bonuses are particularly vulnerable -- made to insiders within 1 year of the bankruptcy filing date are vulnerable to being clawed-back into the bankruptcy estate. That doesn't mean a claw-back will be approved, but it does mean the company better have a good reason for making such a payment or it should be clawed back.
So, if these kinds of payments are popular yet rarely clawed back, to my way of thinking what needs to be looked at is how vigilant judges are?
I think the same of search warrants approved by judges. Are they doing their job or just signing on the dotted line?
I imagine judges are surely a part of the problem, but if we just reversed the standard to begin with and made it so that these kinds of payments legally weren't allowed except with special permission from a judge and therefor had to be "clawed forward", so to speak, that would mostly solve the issue.
I'm just always leery of any proposed solution which boils down to, "Well, technically it's not legally, so what we really need to do is just convince people not to do it!" If judges are rubberstamping things as a matter of course, then we need to write some laws which make that illegal, and create enforcement and oversight.
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