Bankruptcy bonuses for top executives are in trouble, if this congresswoman gets her way

(Reuters) - Bonuses for executives of bankrupt companies have been commonplace for many years now, occurring either during a bankruptcy or shortly before a company files its Chapter 11 petition. Now, politicians on both sides of the aisle have decided it’s time to rein that practice in.

A report from the Government Accountability Office in late September found that in fiscal year 2020, $165 million in bonuses were paid to 223 executives across 42 companies shortly before they filed for bankruptcy and another $207 million in incentive bonuses were granted for 309 executives across 47 companies during their Chapter 11 cases.

Representative Cheri Bustos, a Democrat from Illinois, recently spoke with Reuters about the bonuses and her bill, introduced last week, that would prevent executives of bankrupt companies who make more than $250,000 per year from receiving bonuses either during, or in the six months before, a bankruptcy.

This interview has been edited for clarity and length.

REUTERS: Why is this an important issue?

BUSTOS: I think it's an incredibly important issue when you look at what most people in a congressional district like mine make – maybe $50,000 a year for a family of four. And we get this (GAO) report back and it shows that we have C-suite level folks in these companies that are paid as much as $13 million dollars while they have filed bankruptcy.

The way I look at this is that if you're a worker, you're not getting big bonuses for screwing up. And here you've got these CEOs and CFOs and all the C-suite folks who are getting paid while they're laying off people at their companies. So we thought that it was important to commission this report. And now that we've gotten it back, we want to take this to the next level.

REUTERS: What were your key takeaways from the report?

BUSTOS: I think really that it was so widespread, this abusive practice. We're talking about hundreds of companies that laid off their workers, that filed for bankruptcy and then took in millions of dollars in incentive bonuses.

REUTERS: Do you have co-sponsors?

BUSTOS: We have a Republican co-sponsor. I'm a Democrat that's in a Trump district. So the people back home for me want to make sure that we are working across the aisle. So we have Tim Burchett out of Tennessee, who's our Republican lead on this.

What our next goal will be is that we get as many co-sponsors as possible – bipartisan – and my hope is that we can get this all the way through the House. Hopefully we'll be able to get some leads in the Senate as well and be able to send this over to President Biden to sign into law.

REUTERS: Some bankruptcy scholars say executives play a critical role in the bankruptcy process and need to be compensated at a level that ensures they won't leave. What is your response to that?

BUSTOS: I’ll go back to what I started out saying – these are folks who at minimum would be making $250,000 a year. These are folks who have in many cases driven their company to bankruptcy. This bill doesn't do anything to their base salary. This is just saying that you don't deserve a bonus if your company has filed for bankruptcy.

REUTERS: The report mentioned that almost no bankruptcy judge rejected these bonus plans. Is that a concern?

BUSTOS: That's actually why we've added this provision that would let trustees claw back bonuses paid in the six months before a bankruptcy was filed. I think whether you're a bankruptcy judge or you're somebody who's trying to make decisions about bonuses, this is the right thing to do.

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Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at