Statements on Introduced Bills and Joint Resolutions S832

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

By Mr. GRASSLEY:

S. 832. A bill to provide that bonuses and other extraordinary or excessive compensation of corporate insiders and wrongdoers may be included in the bankruptcy estate; to the Committee on the Judiciary.

Mr. GRASSLEY. Mr. President, I rise today to introduce the "Corporate Accountability in Bankruptcy Act." This bill would clarify that the bonuses and other excessive compensation of corporate directors and wrongdoers can be brought back into a bankruptcy estate when a company goes bankrupt. It is only fair that corporate officers and employees who have engaged in wrongdoing and violated the securities and accounting laws should not be able to make money off of a company which has gone bankrupt, while company employees, shareholders and creditors are left carrying the burden of the bankruptcy. Moreover, corporate officers and insiders should not be allowed to keep their bonuses and loans when a company has done so poorly to go bankrupt.

Currently, the Bankruptcy Code permits a trustee to recover assets which a debtor has previously distributed to creditors within a certain time period prior to the filing of a bankruptcy petition. This allows a trustee to increase a debtor's assets for the fair treatment and equitable distribution of assets among all creditors, as well as to help shore up a debtor's assets during a reorganization.

Section 547 of the Bankruptcy Code currently allows a trustee to recover assets from an insider made within a year of the filing of a bankruptcy petition. Section 548 of the Bankruptcy Code allows a trustee to recover transfers of assets, made within one year, where there has been a fraudulent transaction or where a debtor has received less than what is reasonably equivalent in value. However, the Bankruptcy Code is not clear as to whether these sections would include the bonuses and other extraordinary or excessive compensation of officers, directors or other company employees. That needs to change.
The Corporate Accountability in Bankruptcy Act clarifies section 547 of the Bankruptcy Code to provide that a trustee may recover bonuses, loans, nonqualified deferred compensation, and any other extraordinary or excessive compensation as determined by the court, made to an insider, officer or director and made within one year before the date of the filing of the bankruptcy petition.

In addition, the bill amends section 548 of the Bankruptcy Code to provide that a trustee may recover bonuses, loans, nonqualified deferred compensation, and any other extraordinary or excessive compensation, as determined by the court, paid to an officer, director or employee who has committed securities or accounting violations, within 4 years of the filing of the bankruptcy petition. The reason that the bill extends the present one year reach-back period for fraudulent transfers to four years is because a majority of States have adopted a four year time period or the Uniform Fraudulent Transfer Act, (which allows for 4 years).

The plain fact is that corporate officers and employees who have violated the law, as well as corporate officials who have not done a good job in managing a company, should not be allowed to benefit where their actions have contributed to the downfall of the company. Corporate mismanagement and irresponsibility should not be rewarded, and the bad guys need to be held accountable. The changes to the Bankruptcy Code contained in this bill are tied to excessiveness and wrongdoing and are fair. We need to do something about bringing more accountability and fairness to the system, and the Corporate
Accountability in Bankruptcy Act does that.