The Justice Department has been successful recently in efforts to block proposed bonuses for executives of companies under chapter 11 protection, the Wall Street Journal reported today. As the government raises objections, judges are rejecting some pay plans, riling restructuring advisers trying to keep managers of troubled firms from jumping ship. The latest fight: Hostess Brands Inc., in which the government this week challenged roughly $1.8 million in bonuses proposed for senior managers under a liquidation plan the baker submitted on Friday. That challenge will likely be heard by a judge soon after a last-minute mediation failed yesterday between Hostess management and its bakers union. The allegation in the Hostess matter is similar to claims the government has made in several bankruptcy cases this year, including LightSquared Inc., Eastman Kodak Co., and Hawker Beechcraft Inc. In these cases, the Justice Department has objected to proposed executive compensation plans on the grounds they run afoul of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 restricting retention bonuses for managers who run distressed firms.
