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Incentive Bonus Payments Sidestep New Bankruptcy Law and Should be Curtailed in Chapter 11 According to New ABI Poll

Contact: John Hartgen
             (703) 739-0800 
             jhartgen@abiworld.org

 

“INCENTIVE BONUS” PAYMENTS SIDESTEP NEW BANKRUPTCY LAW AND SHOULD BE CURTAILED IN CHAPTER 11, ACCORDING TO NEW ABI POLL

September 1, 2006, Alexandria, Va. —The majority of respondents in a recent American Bankruptcy Institute online poll agreed by a wide margin that “incentive bonus” payments subvert the new bankruptcy law’s intended limits on retention bonuses for executives operating companies under chapter 11 protection, and, that they should be barred. Fifty-one percent “agreed strongly,” while 20 percent “somewhat agreed” that the “incentive bonus” payments to executives sidestep §503 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) and should be denied.  

By contrast, 19 percent of respondents disagreed that the trend of “incentive bonus” payments skirts the new bankruptcy law’s provisions governing executive compensation. Eleven percent “strongly disagreed,” while 8 percent “disagreed somewhat” that the payments violate the new bankruptcy law and should be banned. Nine percent of the respondents did not know or had no opinion on the issue.

The poll was based on recent chapter 11 cases in which bonus payments to company executives were performance based and labeled as “incentive bonus payments” rather than retention bonuses. Section 503(c) essentially prohibits retention bonuses to executives operating companies under chapter 11. However, because §503 does not contain specific language addressing “incentive bonus” payments to key employees, a few debtors have used this as a way to pay key employees under the label of “incentive bonuses.”

ABI members and members of the public were welcome to submit their response to the statement: “The new trend of “incentive bonus” payments to executives in chapter 11 companies are a thinly veiled end run around new §503(c) and should thus be proscribed.” The latest ABI Quick Poll was open to the public for voting from Aug. 25-31.

ABI’s weekly Quick Poll is posted on ABI’s home page, www.abiworld.org. ABI members and the public are invited to respond to a question on a timely bankruptcy or insolvency issue. Visit http://www.abiworld.net/quickpoll/ to access the results of previous ABI Quick Polls.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 11,500 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.