U.S. Trustee: No Bonus for Last Blockbuster Employee

The last employee of Blockbuster Inc. might not see that farewell bonus.

The Office of the U.S. Trustee, the arm of the Justice Department that oversees bankruptcy cases, is asking a judge to reject a potential six-figure bonus for the sole Blockbuster executive who stayed behind after the video retailer was sold earlier this year.

Bruce Lewis, the company’s former treasurer, has been charged with winding down Blockbuster’s bankruptcy estate after the sale of its assets to Charles Ergen’s Dish Network Corp., which continues to operate Blockbuster stores.

Lewis is slated to receive a bonus for his work of $125,000 for every $10 million in repayment he returns to secured creditors.

U.S. trustee Tracy Hope Davis has taken issue with the payment plan on several fronts.

First, she question why Lewis needs to collect anything more than his basic salary when Blockbuster has paid advisory firm Alvarez & Marsal and other restructuring experts upwards of $5 million to manage its bankruptcy.

“The bonus motion also fails to detail…what unique services Mr. Lewis provides that warrants a bonus over the undisclosed compensation that Mr. Lewis is scheduled to receive,” Davis said in papers filed Friday with the U.S. Bankruptcy Court in Manhattan.

Second, she said the bonus mainly appears to be aimed at keeping Lewis employed with the bankruptcy estate and such retention bonuses, as opposed to incentive plans, are generally prohibited for executives under the Bankruptcy Code.

Finally, Davis said if the bonus does give Lewis an incentive, it’s to direct payments toward secured lenders at the expense of administrative creditors who should be entitled to payment first. According to court documents, certain administrative creditors are only likely to recover 15% of what they are owed. Administrative debts can include tax bills, payments owed to suppliers for deliveries made within 20 days of the bankruptcy filing and attorneys’ fees—although Blockbuster has indicated that it will pay its lawyers in full.

A hearing on the matter is set for Wednesday.