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News | 02.03.10

Deferred Compensation and Bankruptcy: A Match Not Made in Heaven

As corporate bankruptcies have increased, there is also an increased an increased need for these companies to retain key executives. Congress made this more difficult in 2005, when it enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Among other things, this act imposed significant restrictions on a bankruptcy court's ability to approve new retention and severance arrangements to senior executives and others who play a critical role in helping a company emerge from bankruptcy. In addition, some courts have imposed enhanced standards for adopting new bonus programs and incentive compensation arrangements. Even where a company can satisfy the applicable bankruptcy-imposed standards, it may simply wish to restore or enhance its pre-bankruptcy incentives.

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