Bonuses approved amid bankruptcy

Toys R Us execs may get $14 million despite Chapter 11, judge rules.

With the shopping season looming and bankruptcy proceedings underway in federal court, Toys R Us went to its creditors in November with an unorthodox request. To boost holiday sales, the insolvent company asked, let us pay out millions of dollars in bonuses to our top executives.

On Tuesday, a bankruptcy judge approved the proposal.

Under the plan, Toys R Us will pay 17 executives some $14 million in incentive bonuses, as long as the company hits its target of $550 million in earnings. It must reach at least $484 million in adjusted earnings before bonuses are awarded, as USA Today reported.

Attorneys for the company argued in court papers that the bonuses would help encourage executives to focus on driving up sales as the holidays approach.

“Timing, of course, is everything,” they wrote in a Nov. 14 filing. “Now more than ever the senior management team must be properly motivated and incentivized to handle the panoply of responsibilities attendant to their two fulltime jobs of leading the debtors through this restructuring and, at the same time, implementing a worldwide strategy to increase sales following a near shut-down of operations just eight short weeks ago. The task at hand cannot be underestimated.”

But Judy Robbins, a Justice Department attorney representing the interests of creditors, contended that the bonuses were excessive given the company’s financial situation.

“It defies logic and wisdom, not to mention the Bankruptcy Code, that a bankrupt company would now propose further multimillion dollar bonuses for the senior leadership of a company that began the year with employee layoffs and concludes it in the midst of the holiday season in bankruptcy,” she wrote.

In court, U.S. Bankruptcy Judge Keith Phillips noted that none of the company’s creditors or lenders had raised objections — a silence he said he found “particularly striking,” according to USA Today.

“On the contrary, I see the committee and any creditors who have addressed this court are asking the court to approve this plan, and I think that’s telling,” he said.

He gave the bonus plan the green light after a fivehour hearing in Richmond.

Toys R Us filed for Chapter 11 bankruptcy protection in September with plans to restructure $5 billion in longterm debt.