JC Penney store with empty parking lot

Over the course of the last few months, many industries have taken a big hit in the wake of the coronavirus. According to Intelligencer, over 3,600 prevalent companies filed for bankruptcy, and more than 600 filed in June of this year alone. Some of the country’s biggest and most respected brands are included in this lineup. A Reuters report revealed that 40+ household brand names have filed for bankruptcy in recent months.

These are companies that have been forced to close thousands of brick and mortar stores, let thousands of employees go, and restructure their business models in order to stay afloat. The Reuters report indicated that, before filing for bankruptcy, nearly two-thirds of the struggling companies paid out hefty bonuses to their executive teams.

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As disheartening as the news was to the companies’ employees, it was a shock to the hundreds of construction companies left holding unpaid invoices. After paying out bonuses to their executives, these now bankrupt companies still owe millions of dollars to contractors all over the country. The evidence of these projects gone awry can be found in the contractors’ mechanics lien filings.

Contractors Left Empty Handed After Execs Cash Out

Over the last few months, the construction industry has seen multiple high-dollar mechanics liens filed against large companies and substantial projects. Here are a few noteworthy liens filed against these big companies that granted bonuses to their executives:

Hertz

Hertz is facing 10 mechanics liens from Coastal General Contracting across multiple New Jersey counties. These contractor’s unpaid invoices total $24,577.44, a fraction of the $16 million Hertz paid to 370 employees prior to filing bankruptcy on May 22. Hertz also fired approximately 14,000 of its employees.

Neiman Marcus

Neiman Marcus paid $8 million in bonuses to their CEO and other executives and closed each one of its 67 stores while furloughing roughly 11,000 employees and filing for bankruptcy on May 7. Meanwhile, the retail giant failed to pay four mechanics lien claims in Texas totaling more than $300,000. The claimants include Viking Fence Co. and EMCOR Services.

Pier 1

Pier 1 divvied out $2.25 million in bonuses to three employees in February before filing for bankruptcy. The payouts were made even though Pier 1 failed to pay three contractors for construction work in California and Texas. The lien claims, filed by East Texas Refrigeration, Design Air Inc., and VL3 BP Associates, add up to a total of $20,811.43.

Borden Dairy

Borden owes more than $439,000 to contractors, according to liens filed by five different contractors on projects spread across four states. In the meantime, a group of Borden executives received payouts totaling $4 million.

Diamond Offshore and Chesapeake Energy

Diamond Offshore, an oil drilling company, owes $208,569 in mechanics liens to two contractors, Har-Con Mechanical and Fujitec America. Both of these mechanics liens were filed in Harris County, Texas.

Chesapeake Energy owes Bar-S Services and Surge Well Service Inc. a total of $287,601.63 in oil and gas liens.

In the midst of these lien filings, executives from Diamond Offshore, Chesapeake Energy, and another company called Whiting Petroleum will receive nearly $50 million in total after their respective companies file for bankruptcy.

Libbey

Glassware giant Libbey owes two contractors over $330,000 in mechanics liens on projects in Lucas County, Ohio, according to lien filings. The liens rolled in before Libbey awarded bonuses totaling $3.1 million to their executives. On June 1, Libbey filed for bankruptcy and suspended their 401k retirement program for employees.

JC Penney

J.C. Penney approved $10 million in executive bonuses before it filed for bankruptcy on May 15th. At the same time, the company owed a contractor more than $16,000, according to the lien claim. The pandemic forced the retailer to close its 846 department stores and furlough more than 90% of its employees.

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Companies Pay Bonuses to Skirt 2005 Bankruptcy Law

In 2005, legislation was passed that prevented executives from receiving bonuses unless they had a job offer from another firm in hand. The legislation considered “retention bonuses” legitimate efforts to keep the executives on board to devise a plan to improve their current company’s finances.

However, the recent bankruptcy filings were arguably the direct result of the pandemic, and without job offers from other firms, executives have received such pay-to-stay bonuses. Several companies argued that the bonuses were essential in maintaining a strong and central leadership structure during uncertainty caused by the pandemic.

According to a statement from JC Penney, “We are making tough, prudent decisions to protect the future of our company and navigate an uncertain environment, including taking necessary steps to retain our talented management team.”

In the past, before the pandemic broke out, many companies skirted around this 2005 legislation by paying these retention bonuses before bankruptcy was filed.

Contractors Struggle to Recover Payments From Bankrupt Companies

The unemployment rate is sky-high, and the cost of materials and labor continues to rise. When even the largest companies in the country fail to pay contractors amounts which are fractions of the amounts they pay their executives in bonuses, the construction industry should expect to see high-dollar mechanics liens flooding the airwaves in the coming months.