Regulating Bankruptcy Bonuses and Protecting Workers in the Age of COVID-19
by | posted in: Bankruptcy Reform, Bankruptcy Roundtable Updates | 0

By Jessica Ljustina (Harvard Law School)

Since March, executives of 18 large companies received over $135 million total in bonuses prior to their companies filing under Chapter 11, while “[t]hose same companies laid off tens of thousands of workers,” according to a Washington Post report. These recent examples are illustrative of gaps left by the last major reform targeting bankruptcy bonuses. Further reforms have been introduced in Congress every few years since 2005. Referencing inequality and perceived abuses in the context of COVID-19, the House Judiciary Committee advanced the current House bill to the full chamber on September 29, 2020, marking the proposed legislation’s furthest progress thus far.

H.R. 7370, the Protecting Employees and Retirees in Business Bankruptcies Act of 2020 (PERBB) would present significant changes to the Bankruptcy Code aimed at protecting workers. The bill would expand from existing regulation of insider retention bonuses to include a broader set of payments to insiders, senior executive officers, the 20 highest compensated employees who are not insiders or senior executives, department and division managers, and any consultants providing services to the debtor.

Through expanding the scope of executive compensation subject to restrictions, PERBB may more effectively reduce management bonuses paid in bankruptcy. However, the House version of PERBB fails to address bonus payments prior to filing for bankruptcy, a key issue identified at the outset of the post. The related Senate bill has an additional provision which would designate any transfer made to management “made in anticipation of bankruptcy” as a §547 preference avoidable by the trustee.

The full post, including a summary of proposed changes to the Code, is available here.

The full text of the House bill can be accessed here. A redline of relevant 11 U.S.C. provisions reflecting amendments proposed in H.R. 7370 is available here. The full text of Senate bill can be accessed here.

For related Roundtable posts, see Jared Ellias, Regulating Bankruptcy Bonuses; James H. M. Sprayregen, Christopher T. Greco, and Neal Paul Donnelly (Kirkland & Ellis), Recent Lessons on Management Compensation at Various States of the Chapter 11.

Coronavirus Aid, Relief, and Economic Security Act Expands the Scope of the Small Business Reorganization Act
by | posted in: Bankruptcy Administration and Jurisdiction, Bankruptcy Reform, Bankruptcy Roundtable Updates | 0

By Jessica Ljustina (Harvard Law School)

Jessica Ljustina

Congress passed the Small Business Reorganization Act of 2019 (“SBRA”) to streamline and reduce the cost of bankruptcy for small businesses; it went into effect on February 19, 2020.

As originally enacted, the Act allowed certain small businesses with no more than approximately $2.7 million of debt to file for bankruptcy under a new subchapter V of chapter 11 of the Bankruptcy Code.

The recently enacted Coronavirus Aid, Relief, and Economic Security (“CARES”) Act has temporarily increased the debt limit to $7.5 million for cases commenced in the next year. That may greatly expand the SBRA’s scope, as Professor Robert Lawless has estimated that over 50% of businesses that filed under chapter 11 between 2013 and 2017 had debt below $7.5 million.

The full article is available here.