Bloomberg News

ResCap Executive-Bonus Plan Challenged by U.S. Trustee

April 04, 2013

Residential Capital LLC must prove that proposed bonuses valued at $7.8 million are appropriate given that some of the money would be paid to the bankrupt mortgage company’s insiders, an arm of the U.S. government said.

The proposed payments would go to 163 individuals, with two insiders getting 14 percent of the total and six others receiving another 32 percent, the U.S. Trustee, a bankruptcy watchdog for the Justice Department, said in papers filed yesterday in U.S. Bankruptcy Court in Manhattan. The bonuses require court approval.

ResCap has failed to prove that the bonuses “are not ‘virtually guaranteed’ and mere ‘lay-ups’ and that the present targets are difficult to achieve, forcing the insiders to ‘stretch’ in order to earn their bonuses,” lawyers for the U.S. Trustee wrote.

A 2005 bankruptcy law states that companies in Chapter 11 shouldn’t be able to pay so-called retention bonuses over a certain amount just to keep an executive unless there is proof that the individual has a legitimate outside job offer.

ResCap, based in New York, filed for bankruptcy in May with plans to sell most of its assets and resolve legal claims related to residential mortgage-backed securities. The company is owned by Detroit-based auto lender Ally Financial Inc. (ALLY:US)

The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Tiffany Kary in New York at

To contact the editor responsible for this story: John Pickering at

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