The US agency for federal bankruptcy has slammed telecommunications vendor, Avaya, after hearing about its decision to award eleven different executives throughout the board around £3 million in bonuses, only a couple of months after the company originally filed for chapter 11 bankruptcy protection this year.
The decision to offer huge bonuses to executive employees also came after Avaya allegedly commented that they may not be able to stick to their promises for retirement pay-outs – leading to a lot of concern for people associated with the company. It’s fair to say however, right now Avaya is still paying federally guaranteed pension payments.
An Employee Retention Scheme?
My guess is that the bonuses are more of an attempt to keep key employees around as the business circles the drain. The US Trustee told the courts for New York bankruptcy that bonus payments to insiders of this level are “subject to strict standards”, particularly if their aim is to convince those insiders to stay inside of the business.
According to trustee William Harrington, the recent proposal to pay out cash awards to members within Avaya’s executive committee simply for performing the jobs they were originally hired to perform in the first place, doesn’t seem like a good enough reason to shell out so much money, especially when the company is in a state of turmoil.
What’s more, because the bonuses were apparently requested in relation to the executives’ performance during the second fiscal quarter, coming to an end this year on the 31st of March, the debtors probably already know, although they haven’t disclosed, whether the metrics required have been met, or are on target. In other words, benchmarks that are supposed to be incentivising may already have been achieved.
Avaya’s Position as a Bankrupt Company
The position within chapter 11 bankruptcy for Avaya is designed to protected the company from its approximately $6.3 billion in debt. At this time, the bankruptcy only applies to the US subsidiaries, and foreign entities are not included.
Avaya’s debt arose from around an $8.2 billion buyout in 2007, which was conducted by the private equity firm, Silver Lake Partners. Additionally, interest expense of more than $400 million a year has been pushing Avaya further into deeper losses.
In the meantime, Avaya has secured a loan of around $725 million from “Citigroup” to help it fund various operations during the process of the reorganisation.
The story so far:
- Avaya Slammed for Bankruptcy Bonus Plans
- Avaya Update: After Chapter 11 What will Happen to Avaya in the UK?
- Avaya Seeks $3.7 Million for Executive Bonuses During Bankruptcy
- Avaya Networking Sell Off Approved By Bankruptcy Court
- Avaya Could Emerge From Bankruptcy By Summer
- Could Avaya’s Debt be Too Much to Handle?
- Avaya enters Chapter 11 – a very sad day in Comms
