RadioShack's proposal to pay seven of its top executives up to $1.4 million in bonuses is facing some opposition.
The retailer's unsecured creditors filed court papers on Tuesday saying the bonuses are "really disguised as a retention plan," which violates the bankruptcy code. The bankruptcy watchdog overseeing the case voiced similar concerns as the creditors, adding that the financial thresholds the executives must meet to receive the payouts aren't clear.
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In late March, RadioShack filed court papers seeking approval to dole out up to $1.4 million to the seven executives, who are considered "critical, irreplaceable employees."
Court papers say the amount of the payments will depend upon how much creditors recover at the conclusion of the chapter 11 case. RadioShack, which filed for bankruptcy protection last month, is closing many of its stores but still holds out hope of finding a buyer or investor to help it survive on a smaller scale.
U.S. Trustee Andrew Vara, the bankruptcy watchdog overseeing the case, is seeking more information on how the bonus payout will be calculated. Similarly, unsecured creditors say the incentives rely "on a single metric that requires no real effort to achieve."
Since being amended in 2005, the bankruptcy code requires companies tie bonuses for executives and other company insiders to the completion of difficult goals that would benefit the company's reorganization. The change had come in response to the outcry that executives were collecting "pay-to-stay" bonuses in bankruptcy while other employees and retirees suffered.
A spokesman for RadioShack wasn't immediately available to comment Wednesday.
The bonuses are slated to go before Judge Brendan Shannon of the U.S. Bankruptcy Court in Wilmington, Del., on Monday.
RadioShack sought chapter 11 protection on March 8, the second time since 2015. The retailer soon after received court approval to close about 500 of its 1,300 stores and hold blowout sales at the rest of its locations not yet slated for closure.
RadioShack's capital structure includes about $25.5 million in senior term loans, $40 million in junior term loans and a $23 million intellectual property loan. The company also owes about $62.9 million in trade debt, which includes $52.6 million owed to vendors and creditors, and about $10.2 million in unpaid prebankruptcy debt.
Write to Lillian Rizzo at Lillian.Rizzo@wsj.com
(END) Dow Jones Newswires
April 19, 2017 13:57 ET (17:57 GMT)