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Hostess Liquidation Approved, Along With $1.8 Million in Executive Bonuses

Bonus pak!

A federal judge has blessed the Hostess liquidation, after labor and management failed to reach agreement on an equitable solution. This isn’t surprising at all; management was basically set up to liquidate the company and strip the assets. Twinkies and Ding Dongs will survive; the company has solicited several offers for the brands. It’s just the 18,500 employees who will be out of luck; even if some of them get retained after the fire sale, getting absorbed into a new company almost certainly means that they will not all get their jobs back.

Meanwhile the executives will get a BONUS for all this:

The company behind iconic treats such as Ho Hos and pantry staples like Wonder Bread now has the bankruptcy court’s full blessing to start seeking buyers for its 30 brands and 36 plants with a skeleton staff at its helm. A group of the company’s top executives—19 officers and high-level managers—deserve extra compensation as they wind down operations, Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, N.Y., said at a Thursday hearing.

He cautioned those in his courtroom not to view the bonuses, which require the managers to hit certain milestones and goals, as a matter of management “feathering its nest.”

“That is clearly not the case,” Judge Drain said. “This is difficult work that is well compensated, not as a handout,” as Congress intended when crafting laws to give companies in bankruptcy the greatest chance of success, he said.

Mm-hm. Remember that the CEO, who actually isn’t eligible for a bonus in this round, gave himself as well as top executives a big raise BEFORE all the labor troubles started (fear not for bonus-less Greg Raymond; he “earns” $125,000 a month). The nest was already feathered. So these new bonuses, which could range up to 75% of salary, represent additional soft downy pillow filler on top of that. A $1.8 million bit of filler, to 19 people.

Even the US Trustee, the Justice Department’s bankruptcy overseer, objected to the bonus payouts. But life will go on. Hostess brands will continue, the former employees will struggle to find work, and the private equity firm that wanted to drive this company into the ground from the beginning will liquidate, cash out, and make lots of money off of all that suffering.

Welcome to American-style capitalism.

The answer to all this, by the way, is to end the tax preference for debt over equity. This would drive a stake through the heart of the Bain Capital-style business model that loads up the companies they purchase with debt and courts disaster, only to strip the assets and make lots of money, win or lose.

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David Dayen

David Dayen