(WatchDogReport.org) – When a business files for bankruptcy, it’s generally understood the company no longer has the money to meet its obligations and is deeply in debt. A new report by the US Government Accountability Office (GAO) revealed some businesses awarded their executives millions of dollars before declaring bankruptcy.
At the end of September, the GAO released a shocking report detailing an examination into 7,300 companies that filed for bankruptcy in fiscal 2020. The agency discovered 42 of the businesses that filed Chapter 11 gave $165 million in bonuses to their executives before filing. The bonuses were handed out anywhere from five months to two days beforehand.
Talk about failing up! 💰🪂
Watchdog says government must rein in “bankruptcy bonuses” — 42 ailing companies doled out $165 million in bonuses to top execs days before filing for bankruptcy.
via @InTheMkts for @CrainsNewYork
— Cory Schouten (@CorySchouten) October 5, 2021
None of the companies asked the courts for approval before handing out the bonuses, even though Section 503(c) of the US Bankruptcy Code prohibits companies from paying extra compensation to executives to stay during the proceedings.
Only 70 companies asked for approval, and the courts approved all of them. The courts allowed $571 million to go to 16,000 executives.
The GAO recommends strengthening regulations to stop companies from handing out pre-bankruptcy executive bonuses in the future without court approval. However, one must wonder why a company is handing out extra money while also claiming it can’t afford to pay its debts.
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