Creditors and Bankruptcy Watchdog Opposes Plan of Sports Authority to Pay Bankruptcy Bonuses to Four Top Executives

by San Antonio Attorney

The Justice Department and creditors of Sports Authority are opposing to the company’s plans to pay four top executives with up to $2.85 million as bonuses in the bankruptcy case.

The athletic-wear retailer filed for bankruptcy protection and started closing sales in an attempt to raise money to pay creditors.  When the liquidation process came through its ending, Sports Authority revealed plans to give out bonuses to top executives, who were not named by the company.

On July 26, 2016, a bankruptcy watchdog from the Justice Department, U.S.  Trustee Andrew Vara, together with the representatives of the unsecured creditors committee expressed disapproval of the bonuses and the lack of available information regarding the requested rewards to selected executives.

The lawyers of Sports Authority explained that the monetary incentives are important in order to motivate the executives to do give their best during the final days of the company.  Discretion is suitable to guard morale, and ensure that the leaders continue their service in the company.

But critics do not find the basis of the bonus program as compelling.  Sports Authority is nearly totally liquidated.

Unsecured creditors described the reason of Sports Authority as “ridiculous”. According to them, it is the liquidators that are exerting efforts to generate as much funds as possible from the liquidation.

It is not unusual for bankruptcy judges to allow bankrupt companies to conceal particulars of top executive bonuses if it is “commercially sensitive.”

But in the case of Sports Authority’s, the confidentiality of the intended bonuses has been met with opposition from the retailer’s creditors and a federal bankruptcy watchdog.

According to the creditors committee, making the names of executives a secret is just the same as covering up the whole bonus program.  Also, they do not consider the bonuses as encouragement for good performance.  Rather, the creditors claim, they seem to be just a favor for Sports Authority’s acceptance to an agreement that provides senior lenders $71 million of the retailer’s scarce outstanding cash.

Earlier, creditors filed a motion for the conversion of Sports Authority’s bankruptcy proceeding from Chapter 11 to Chapter 7.  That motion is scheduled for hearing on Aug. 2.

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