The battle over compensation packages challenged by the trustee and creditors in the Crystal Cathedral Chapter 11 bankruptcy is far from finished. A hearing has been scheduled for February 9th to decide on whether or not compensation packages for several insiders in the Crystal Cathedral bankruptcy will be allowed.
The U.S. Trustee, an employee of the Department of Justice who works in an administrative capacity with the court, questioned the need for a $132,019 housing allowance for Southard. The trustee, backed by the creditors committee, also questioned the need for a $70,000 annual salary for Gretchen Penner, the youngest of four Schuller daughters, who produces the “Hour of Power” broadcasts. An objection was also filed to the $55,000 annual salary for Neyva Penner Klaassen, who helps schedule musical guests for “Hour of Power.”
Documents filed in bankruptcy court also showed that Schuller family members received annual salaries totaling more than $2 million – about $834,000 in tax-exempt housing allowances.
The bankruptcy trustee has called the compensation packages extremely excessive; but how much is too much when it comes to compensation? Bankruptcy Code section 503(c) which is part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was specifically designed to combat excessive compensation packages. This section limits compensation to insiders (such as officers and directors) if the compensation is “for the purpose of inducing such person to remain with the debtor’s business.”
It also prohibits severance packages to officers and directions which are disproportionately larger than the severance packages given to non-management employees of the company in bankruptcy. Corporate bankruptcy filers who want to grant compensation packages to employees must work closely with their bankruptcy attorney to make sure it will pass muster in bankruptcy court.