Execs. of Bankrupt Buffets to Split $2.3M in Bonuses
Eagan-based restaurant operator Buffets, Inc., is in bankruptcy for the second time, but its executives will likely receive six-figure payouts.
Buffets CEO Michael Andrews, Chief Financial Officer Keith Wall, Chief Concept Officer Fred Williams, and 13 other managers will split about $2.3 million in bonuses if the company meets or surpasses certain financial targets, according to documents filed with the U.S. Bankruptcy Court in Delaware.
The three men and 12 executives collectively received about $1 million in bonuses during the company's 2008 bankruptcy.
According to a Bloomberg report, bankrupt companies are able to pay such bonuses by taking advantage of a loophole in a 2005 federal law that restricts extra pay to executives of companies in bankruptcy. The loophole makes it possible for companies to pay bonuses if they claim the extra pay is tied to milestones achieved in the companies' reorganizing efforts.
U.S. Bankruptcy Judge Mary Walrath on March 15 approved the $2.3 million in bonuses to Buffets executives under the condition that the company meets certain financial targets. The executives will receive the bonuses if the company maintains a certain amount of cash on specific dates, keeps its debt on letters of credit low, and exits bankruptcy quickly, among other things, Bloomberg reported.
During Buffets' first bankruptcy, executives received bonuses after the company surpassed similar financial targets.
Buffets operates restaurants under brands that include Old Country Buffet, HomeTown Buffet, Ryan's, and Fire Mountain. It filed for bankruptcy for a second time in January and announced a restructuring plan that included eliminating all of the company's roughly $245 million of outstanding debt, plus interest payments of more than $30 million. The plan also called for the closure of 81 “underperforming” restaurants-which represented about 16 percent of the 494 that the company operated at the time. The company said in January that it expected to complete the restructuring process within a six-month period.
Buffets is among Minnesota's 20-largest private companies based on revenue, which totaled an estimated $1.15 billion during its last fiscal year.
Buffets and other bankrupt companies' bonus plans are reportedly attracting scrutiny from both Congress and the U.S. Department of Justice.
“Six-figure payouts to executives who helped create the bankruptcy in the first place are not what anybody envisioned when the 2005 bankruptcy law was signed,” U.S. Senator Charles Grassley from Iowa reportedly said in a statement.
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