Top executives at some companies received $165 million in bonuses before filing for bankruptcy last year, according to a report from the Government Accountability Office (GAO).
The report released late last month examined 7,300 companies that filed for Chapter 11 bankruptcy in fiscal 2020.
None of the companies requested court approval for executive retention bonuses during bankruptcy.
However, the report found that 42 debtors gave $165 million worth of pre-bankruptcy retention bonuses to executives anywhere from five months to two days before filing.
Under Section 503(c) of the U.S. Bankruptcy Code, debtors in Chapter 11 are restricted from paying executives retention bonuses for staying through bankruptcy and incentive bonuses for meeting certain performance targets. Generally, debtors must obtain court approval to pay bonuses during bankruptcy.
Some attorneys told the GAO that debtors use pre-bankruptcy bonuses as a workaround because awarding executive retention bonuses during bankruptcy is nearly impossible.
Only 70 companies requested approval to pay employee bonuses, the GAO found, all of which were approved. Debtors awarded a total of $571 million to more than 16,600 executive and nonexecutive employees through court-approved bonuses.
The GAO recommended that Congress consider amending the Bankruptcy Code to require bonuses filed before bankruptcy to be subjected to court oversight.
Several companies made headlines last year for giving out large bonuses right around the time they filed for bankruptcy. Chuck E. Cheese, Hertz, and Neiman Marcus were all among the companies who awarded such bonuses, CBS News noted.