Just weeks before closing its doors and laying off thousands of employees, yellow company Court documents show millions of dollars in bonuses were given to executives so they wouldn’t leave as the trucking company descended into chaos.
Yellow paid bonuses totaling about $4.6 million to eight current and two former executives in the weeks before the company was formed bankrupted The company plans to liquidate, according to corporate disclosures in Delaware Bankruptcy Court. That number would be higher if Yellow manages to avoid a sudden bankruptcy filing, according to a person familiar with the matter.
Of the bonuses, nearly $2 million paid on July 14 was approved by Yellow’s board of directors in June – when the company was in trouble but before it considered filing for bankruptcy, according to people familiar with the matter. Yellow said its public dispute with the union representing most of its employees escalated days later when strike notices prompted the company’s customers to take their business elsewhere.
The remaining bonus payment, due on July 31, became necessary as Yellow plans to file for bankruptcy protection to pay off creditors and wind down the business, according to the person, who spoke on condition of anonymity. The company’s fleet of trailers, cargo terminals and other assets – all of which need to be sold quickly and for the highest possible price – were previously valued at about $2.1 billion. Fire sales can severely reduce their selling prices.
So-called retention bonuses are common in major restructurings because they provide an incentive for employees to stay and help clean up a failing company. It’s less common to pay them before filing for bankruptcy, as is the case with Yellow, which is about to close permanently.
The bonuses underscore an unintuitive logic that manifests itself time and time again when companies fail: The executives who bankrupt their companies are often the ones best equipped to help pay off the debt, if only because they own the institution knowledge. Creditors, low-level employees and even regulators often attack retention bonuses as unfair or unnecessary, but federal judges and restructuring consultants often find that retention bonuses can help creditors hurt by a bankruptcy recover more than they would otherwise.
The July payments include a $1 million retention bonus to Yellow Chief Restructuring Officer Matthew Doheny, $1.08 million to Chief Operating Officer Darrel Harris and $1.08 million to Chief Executive Officer Darren Hawkins, according to the company’s court filing. $625,000.
Yellow also said the company paid retention bonuses totaling approximately $249,000 to its former chief commercial officer and $23,000 to its former senior vice president of human resources. The company paid the bonuses because when it filed for bankruptcy, it explored the possibility of selling its logistics business as a going concern rather than shutting it down, but major lenders were not supportive of the idea, the person said. The bonuses were therefore used to offset severance payments, totaling about $306,000 and $296,000, respectively, the person said.
Yellow did not respond to a message seeking comment. Dorney, Harris and Hawkins did not respond to LinkedIn messages seeking comment.
Sean O’Brien, president of the International Brotherhood of Teamsters, said in a statement that bonuses should be addressed through congressional reforms “that workers in this country desperately need.”O’Brien criticizes yellow in jump over Pay employee benefits.
In 2005, Congress restricted companies from paying executive retention bonuses under Chapter 11 of the Bankruptcy Code, prompting companies to pay such bonuses before filing for bankruptcy. In recent years, there have been calls to limit such pre-bankruptcy bonuses. 2021, Government Accountability Office respected More than 200 executives received about $165 million in bonuses before the company filed for bankruptcy, and Congress asked courts to oversee executive bonus retention.
Disputes over executive pay in bankruptcy court can become particularly heated when unions are involved, said the company. Jared EliasHarvard Law School Professor, Research Chapter 11 Award. “Given what happened here, I understand why they paid the bonus before submitting the application,” Elias said by phone. Normally, he said, they would be paid without dispute and with the court’s permission after the liquidation was completed.
Yellow filed for bankruptcy on Aug. 6 with $1.2 billion in long-term debt, including about $700 million in U.S. government pandemic relief loans, which the company said it expects to repay in full. The closure will ultimately result in approximately 30,000 Yellow employees losing their jobs, according to previous statements from the company.
But the ongoing liquidation activity has sparked fierce competition from lenders and rival trucking companies that see value in Yellow’s assets.Lender leadership Apollo Global Management An initial offer was made to fund the company’s shutdown, but that offer was eventually replaced by a better deal struck by Ken Griffin’s Citadel and hedge funds MFN Partners Limited Partner. since then, estes express co. and old dominion freight co. Competitive bids for cargo terminals in Yellow, the most recent being Estes dedication $1.525 billion.
The case is Yellow Corp. 23-11069 in the U.S. Bankruptcy Court for the District of Delaware (Wilmington).
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