[Congressional Record Volume 148, Number 109 (Tuesday, September 3, 2002)]
[Senate]
[Pages S8099-S8100]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY:
  S. 2901. A bill to provide that bonuses and other extraordinary or 
excessive compensation of corporate insiders and wrongdoers may be 
included in the bankruptcy estate; to the Committee on the Judiciary.
  Mr. GRASSLEY. Madam President, I come to the floor today to introduce 
legislation that will bring more accountability to corporate officers 
and directors when a company goes bankrupt. This bill contains 
substantially the same language I had in an amendment I filed to the 
corporate reform bill that we passed into law a couple of months ago, 
but unfortunately my bankruptcy amendment was not considered. My 
legislation, the ``Corporate Accountability in Bankruptcy Act'', would 
clarify that the bonuses and other excessive compensation of corporate 
directors and wrongdoers can be brought back into a bankruptcy estate 
when a company goes bankrupt. This legislation is equitable because 
corporate officers and those individuals that have engaged in 
wrongdoing and violated the securities and accounting laws should not 
be able to make outrageous amounts of money off of a company which has 
gone bankrupt, while the company's employees, shareholders and 
creditors are left carrying the burden of the bankruptcy. Furthermore, 
corporate officers and insiders shouldn't be allowed to get bonuses and 
loans when a company has done so poorly to go bankrupt. They don't 
deserve that kind of excessive compensation. The plain fact is that 
corporate officers and those who engage in illegal activity should not 
be allowed to benefit where their actions have contributed to the 
downfall of the company. I don't think that's fair, and my bill would 
ensure that there is some equity in terms of who gets left holding the 
bag when a company goes bankrupt.
  Currently, the Bankruptcy Code permits a trustee to recover assets 
which a debtor has previously distributed to creditors within a certain 
time period prior to the filing of a bankruptcy petition. This allows a 
trustee to increase a debtor's assets for the fair treatment and 
equitable distribution of assets among all creditors, as well as to 
help shore up a debtor's assets during a reorganization.
  Section 547 of the Bankruptcy Code allows a trustee to recover assets 
from an insider made within a year of the filing of a bankruptcy 
petition. However, the Bankruptcy Code does not clearly establish that 
this section applies to bonuses and other extraordinary or excessive 
compensation of insiders, officers and directors. A cursory review of 
the case law by my staff and the Congressional Research Service 
indicates that the courts have not developed this issue, and that 
relevant case law is not dispositive on the matter of whether bonuses 
and excessive compensation are avoidable in bankruptcies of publically 
held companies.

  In addition, section 548 of the Bankruptcy Code allows a trustee to 
recover transfers of assets, made within one year, where there has been 
a fraudulent transaction or where a debtor has received less than what 
is reasonably equivalent in value. Here too, the Bankruptcy Code is not 
clear as to whether this section applies to the bonuses and other 
extraordinary or excessive compensation of officers, directors or other 
company employees who have violated securities laws or engaged in 
illegal accounting practices when their conduct, but not their 
compensation, has led to the company's bankruptcy. Similarly, the case 
law is not dispositive on this matter either.

[[Page S8100]]

  I think everyone would agree that a trustee should be able to recover 
these kinds of assets when a company goes bankrupt. Corporate bigwigs 
and wrongdoers shouldn't be able to keep their bonuses, loans or other 
excessive compensation when a company goes under. Corporate 
mismanagement and irresponsibility should not be rewarded, and the bad 
guys need to be held accountable.
  So I think that we need to clarify the Bankruptcy Code in order that 
bonuses, loans, and other extraordinary or excessive compensation that 
the company has given to the insiders and wrongdoers can be drawn back 
into the bankruptcy estate.
  My legislation is simply and straightforward. The Corporate 
Accountability in Bankruptcy Act would specifically provide in section 
547 of the Bankruptcy Code that a trustee may recover bonuses, loans, 
nonqualified deferred compensation, and any other extraordinary or 
excessive compensation as determined by the court, made to an insider, 
officer or director and made within one year before the date of the 
filing of the bankruptcy petition.

  In addition, the Corporate Accountability in Bankruptcy Act would 
specifically provide in section 548 of the Bankruptcy Code that a 
trustee may recover bonuses, loans, nonqualified deferred compensation, 
and any other extraordinary or excessive compensation, as determined by 
the court, paid to an officer, director or employee who has committed 
securities or accounting violations, within 4 years of the filing of 
the bankruptcy petition. My bill extends the present one year reach-
back period for fraudulent transfers in the Bankruptcy Code to 4 years, 
I did that because a majority of states have adopted a 4 year time 
period or the Uniform Fraudulent Transfer Act which allows for a 4 year 
time frame. I believe that these changes to section 548 are fair 
because they are tied to excessiveness and wrongdoing. Simply said, 
illegal acts should not be rewarded with a big fat paycheck.
  The point of this bill is that corporate officers and wrongdoers 
should not be able to keep bonuses, loans and other excessive 
compensation when the company goes under and others, employees, 
creditors and investors, are left holding an empty bag through no fault 
of their own. It's just not fair. So I hope that my colleagues will 
support the Corporate Accountability in Bankruptcy Act to make the 
Bankruptcy Code clear that corporate bigwigs and wrongdoers cannot 
unjustly enrich themselves and their excessive compensation and loans 
can and will be brought back into the bankruptcy estate.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2901

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Corporate Accountability in 
     Bankruptcy Act''.

     SEC. 2. BANKRUPTCY PROVISIONS.

       (a) Preferences.--Section 547 of title 11, United States 
     Code, is amended by adding at the end the following:
       ``(h) A trustee may avoid any transfer made within 1 year 
     before the date of the filing of the petition that was made 
     to an insider, officer, or director for any bonuses, loans, 
     nonqualified deferred compensation, or other extraordinary or 
     excessive compensation as determined by the court.''.
       (b) Fraudulent Transfers and Obligations.--Section 548(a) 
     of title 11, United States Code, is amended by adding at the 
     end the following:
       ``(3) The trustee may avoid any transfer of an interest of 
     the debtor in property, or any obligation incurred by the 
     debtor, including any bonuses, loans, nonqualified deferred 
     compensation, or other extraordinary or excessive 
     compensation as determined by the court, paid to any officer, 
     director, or employee of an issuer of securities (as defined 
     in section 2(a) of the Public Company Accounting Reform and 
     Investor Protection Act of 2002), if--
       ``(A) that transfer of interest or obligation was made or 
     incurred on or within 4 years before the date of the filing 
     of the petition; and
       ``(B) the officer, director, or employee committed--
       ``(i) a violation of the Federal securities laws (as 
     defined in section 3(a)(47) of the Securities Exchange Act of 
     1934), State securities laws, or any regulation or order 
     issued under Federal or State securities laws;
       ``(ii) fraud, deceit, or manipulation in a fiduciary 
     capacity or in connection with the purchase or sale of any 
     security registered under section 12 or 15(d) of the 
     Securities Exchange Act of 1934 or under section 6 of the 
     Securities Act of 1933; or
       ``(iii) illegal or deceptive accounting practices.''.
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