- A report has found that many large companies paid executives lavish bonuses immediately before seeking bankruptcy protection so far during the pandemic.
- 1/3 of companies paid out bonuses within 1 month of filing, and two 2/3 paid out bonuses within 6 months of filing.
- This practice evades a 2005 law which bans companies from paying executive bonuses while in bankruptcy.
Executives around the country have been cashing in just before their companies declare bankruptcy and announce massive layoffs.
A Reuters report has found that a majority of the 45 large companies which have declared bankruptcy during the coronavirus pandemic have recently paid out executive bonuses.
One third of the companies paid out bonuses within one month of declaring bankruptcy, while two thirds paid out bonuses within six months. Eight of the companies approved bonuses as close as 5 days before filing.
Though a 2005 law bans companies from paying out such bonuses while in bankruptcy, there is no restriction on handing them out before seeking bankruptcy. Companies have been seizing this loophole in recent days.
According to Reuters, “J.C. Penney – forced to temporarily close its 846 department stores and furlough about 78,000 of its 85,000 employees as the pandemic spread – approved nearly $10 million in payouts just before its May 15 filing. On Wednesday, the company said it would permanently close 152 stores and lay off 1,000 employees.”