Last month we blogged about the Toys “R” Us bankruptcy and explored how one company’s bankruptcy can ripple through an entire industry. This month we are checking in on this interesting bankruptcy again because the company’s general counsel has resigned, and the company is asking the bankruptcy court for permission to pay out big bonus to its top executives.
Earlier this month, Toys “R” Us announced that is general counsel was stepping down after just 10 months on the job. It is not unusual for high level executives to move after a bankruptcy filing, but this departure is raising some eyebrows.
One of the common misconceptions about the bankruptcy process is that it limits executive pay. While there are limitations are the amount of money that can be offered to top executives to get them to stay with the company while it goes through the bankruptcy process, there are basically no other restrictions.
It was recently revealed that Toys “R” Us paid CEO David Brandon $2.8 million as a retention bonus just before filing for Chapter 11. That money is not being clawed back, and the bankruptcy court is being asked to approve even more bonus money. The company is asking the court to green light end of the year bonuses of over $90 million. It plans to give Brandon another $12 million, give 16 other top executives $20 million, and give its lower level employees $60 million.
There is no reason to think the bankruptcy court will not approve this plan if the company has the cash to make it happen. Bonuses are a part of doing business, even when business isn’t doing well.
The Rumor Mill
It is going to be interesting to see how Toys “R” Us and the rest of the toy industry do this holiday season since things have been so unsettled for the last quarter. All the companies have been staying positive, which is important since negative rumors pushed Toys “R” Us to file sooner than it probably would have otherwise.
As the Financial Times reports, Toys “R” Us had to rush to file for bankruptcy after word got out that it was having financial trouble and its suppliers stopped shipping some orders or asked for cash on delivery just as it was preparing for its busiest season. This goes to show you just how important it is to work directly with suppliers if you are having financial trouble. Nobody wants to find out that a business they work with is on the brink of bankruptcy from a talking head on cable tv.
If you need help steering your business through a financial crisis, don’t hesitate to reach out to an attorney as well as to your financial advisors. Our firm regularly helps businesses navigate staffing issues and renegotiate contracts or debts. We are also relied on by business owners who are trying to figure out if they should file for bankruptcy.