The coronavirus recession tipped dozens of troubled companies into bankruptcy, setting off a rush of store closures, furloughs and layoffs. But several major brands, including Hertz Global, J.C. Penney and Neiman Marcus, doled out millions in executive bonuses just before filing for chapter 11 protection, according to a Washington Post analysis of regulatory filings and court documents. Since the pandemic took hold in March, at least 18 large companies have rewarded executives with six- and seven-figure payouts before asking bankruptcy courts to shield them from landlords, suppliers and other creditors while they restructured, the Post review found. They collectively meted out more than $135 million, documents show, while listing $79 billion in debts. Labor experts and bankruptcy attorneys say that the payouts are particularly egregious — and unjustifiable — during an economic crisis, and were timed to bypass a 2005 law passed specifically to prevent executives from prospering while their companies failed. Many companies have homed in on retention to justify bonuses because they cannot be attached to traditional motivators such as sales targets or stock valuations during bankruptcy. Experts said retaining executives — even those who may have overseen a company’s decline — is often seen as a way to maintain consistency and raise the chances that the company will successfully emerge from bankruptcy. The rise of pre-bankruptcy bonuses corresponds with the passage of 2005 legislation meant to stamp out such payouts during reorganization, attorneys say. The Post’s review found that companies typically awarded bonuses within weeks — or days in several cases — of filing for chapter 11 protection. “It’s become a standard solution: Pay the bonus before bankruptcy, so bankruptcy law doesn’t apply,” said Adam Levitin, a Georgetown University law professor whose work focuses on bankruptcy and financial regulation.
