Companies paid $165 million in bonuses before going bankrupt

Chuck E. Cheese, Hertz and J.C. Penney are among the many companies that paid millions of dollars in bonuses to their top executives before their corporate bankruptcy filings. Each company paid a bonus to their top executives last year before they declared Chapter 11 bankruptcy. Other companies on the list include Neiman Marcus, oil companies like Whiting Petroleum and Chesapeake Energy. The Government Accountability Office (GAO) found in a new report that all 42 companies spent billions of dollars in so-called "retention" bonuses in the days that led up to their bankruptcies. Michael Clements, GAO's financial markets director said in a GAO podcast, "These companies paid bonuses totaling $165 million anywhere from five months to as little as two days before the company filed for bankruptcy." 

The awarding of retention bonuses right before filing for Chapter 11 bankruptcy shoes that the U.S. bankruptcy code needs fixing. The change would involve amending the bankruptcy code rule that Congress passed 15 years ago. The Bankruptcy Abuse Prevention and Consumer Protection Act passed in 2005 limits the debtor companies' ability to give out worker retention and executive bonuses without a bankruptcy judge's blessing. The bankruptcy rule does not however regulate what a company can or cannot do before it files for bankruptcy. 

Source: CBS News