(Bloomberg) — Weeks before closing its doors and laying off thousands of workers, Yellow Corp. has given executives millions of dollars in bonuses to keep them from leaving the trucking company as it unravels the chaos.
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In the weeks before the company filed for bankruptcy, Yellow paid eight current and two former executives $4.6 million in bonuses, according to corporate filings in Delaware bankruptcy court. The figure is higher than it would have been had Yellow suddenly defended the bankruptcy filing, according to a person familiar with the matter.
Of the bonuses paid, nearly $2 million, paid on July 14, was approved by Yellow’s board in June — when the company was in trouble but before it filed for bankruptcy, according to the person. Yellow’s public dispute with the union that represents most of its workforce escalated days after a strike announcement prompted the company’s customers to take their jobs elsewhere, Yellow said.
The rest of the bonuses paid on July 31 became necessary, after which he planned to file for bankruptcy to pay off yellow creditors and shrink, according to the person, who asked not to be named. The company’s trailers, freight terminals and other assets — all of which need to be sold as quickly and as high as possible — were previously valued at around $2.1 billion. A fire sale can greatly reduce the value it brings.
So-called retention bonuses are common in major restructurings, as they encourage employees to stay and help clean up failing organizations. As with Yellow, when the company in question closes for good, it’s very common to pay them before filing for bankruptcy.
The bonuses highlight an inexplicable logic that often manifests itself when corporations fail: the executives who steer companies into bankruptcy are often the only people equipped to help them pay off their debts, thanks to their institutional expertise. Creditors, lower-level employees and even regulators frequently attack retention bonuses as unfair or unnecessary, but federal judges and restructuring counsel recognize that they help creditors more than they can recover in bankruptcy.
The July payments included a $1 million retention bonus for Yellow Chief Restructuring Officer Matthew Doheny, $1.08 million for Chief Operating Officer Darrell Harris and $625,000 for CEO Darren Hawkins, the company’s court filing said.
Yellow said he paid a total of $249,000 to his former chief business officer and $23,000 to his former senior vice president of human resources. The company paid those bonuses as it explored a possible sale of its logistics business rather than closing it when it filed for bankruptcy, the person said, but key creditors did not support that idea. So the bonus will be used to offset a total of $306,000 and severance payments of $296,000, the person said.
Yellow did not return a message seeking comment. Doheny, Harris and Hawkins did not respond to LinkedIn messages seeking comment.
International Brotherhood of Teamsters General President Shane O’Brien said in a statement that “workers in this country desperately need” the bonus reform passed by Congress. O’Brien criticized Yellow for making the payments when he stopped paying employee benefits.
In the year In 2005, Congress barred companies from paying executive retention bonuses in Chapter 11, allowing companies to pay awards before they file for bankruptcy. In recent years there have been calls to curb such pre-bankruptcy bonuses. In the year In 2021, the Government Accountability Office urged Congress to seek judicial oversight after more than two hundred executives received nearly $165 million before their companies filed for bankruptcy.
Jared Elias, a Harvard Law School professor who has researched Chapter 11 bonuses, says that disputes over executive pay in bankruptcy court can be particularly fraught when a union is involved. “Given what’s going on here, I can see why they paid the bonuses before they applied,” Elias said by phone. Usually, they are paid without dispute, with court approval, after an investigation is completed, he said.
Yellow filed for bankruptcy on Aug. 6 with $1.2 billion in long-term debt, including nearly $700 million in U.S. government pandemic relief loans, which the company said it expects to repay in full. The closing will ultimately put about 30,000 Yellow employees out of a job, according to a company statement.
But the liquidation process, now in full swing, has led to heated competition between lenders and rival trucking companies that value the yellow assets. Lenders led by Apollo Global Management initially offered to finance the company’s windfall, a proposal that was eventually replaced by a better deal with Ken Griffin and hedge fund MFN Partners LP. Since then, Estes Express Lines and Old Dominion Freight Line Inc. They bid for the yellow freight terminals, with Estes recently offering $1.525 billion.
The case is Yellow Corp. 23-11069, U.S. Bankruptcy Court District of Delaware (Wilmington).
(Includes the comments from the union official in paragraph 10.)
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