By Jonathan Randles

November 11, 2018 - Westmoreland Coal Co. paid eight of its current and former executives more than $10.2 million in salary, bonuses and severance in the 12 months before the coal-mining company filed for bankruptcy protection in October.

Executives at Westmoreland collected additional compensation in the form of benefits and expense reimbursements over the same one-year period, according to a Thursday filing in the U.S. Bankruptcy Court in Houston. The Englewood, Colo.-based company also listed more than $3.8 million in so-called retainer payments and management fees to its directors.

Bankruptcy rules require companies that seek protection from creditors in chapter 11 to disclose payments made to insiders during the 12-month period prior to the bankruptcy filing. Westmoreland paid more than $5.88 million in bonuses and $2.27 million in salary to current and former executives, the filing said. Nearly $1.98 million in severance was paid to the company’s former chief executive officer and president and chief operating officer.

The bonuses are described in court papers as incentive awards. Financially distressed companies across industries regularly pay these types of bonuses to executives in the months leading up to a bankruptcy filing.

“This is how chapter 11 works,” said Jared Ellias, a law professor at the University of California, Hastings who studies corporate governance in bankruptcy and is the author of a forthcoming academic paper on the payment of corporate bonuses in bankruptcy.

Westmoreland’s senior lenders, who are funding the chapter 11, consented to the bonus payments before the bankruptcy filing, a person familiar with the company’s restructuring told The Wall Street Journal on Friday. The cash bonuses are intended to retain executives who had participated in a long-term incentive program that had been paid in stock but that is now essentially worthless in chapter 11, this person said. Westmoreland’s stock was previously listed on the Nasdaq and is expected to be cancelled in chapter 11, court papers say.

Westmoreland interim Chief Executive Michael Hutchinson received more than $2.36 million in bonus payments, while Chief Operating Officer Joseph Micheletti received $1,240,200 in bonus payments, court papers say. The board appointed Mr. Hutchinson interim chief executive in November 2017. He had served as an independent director since 2012, according to the company.

Chapter 11 creates incentives for distressed companies to pay executive bonuses prior to a bankruptcy filing, Professor Ellias said. Such bonuses can, in effect, help retain top managers during a bankruptcy. Meanwhile, it can be more difficult to award such bonuses while a company is in chapter 11 because such payments are reviewed by a judge and could bring a legal challenge from creditors or labor unions, he said.

Westmoreland filed for bankruptcy protection on Oct. 9, listing about $1.4 billion in debt. The company is seeking concessions from its union employees and retirees. The coal-mining company employs about 1,732 workers overall. Westmoreland is party to seven collective bargaining agreements covering about 900 employees, according to court papers filed in October.

“Once again, we find corporate executives looting coal companies and driving them into bankruptcy while setting up workers to take the brunt of the fall,” UMWA International President Cecil Roberts said in an email to the Journal.

“Just as we have in every bankruptcy that has hit our industry, we will fight for our active and retired members through every step of this bankruptcy,” Mr. Roberts said. “If Westmoreland thinks it can steamroll the UMWA it had better think again.”

Under a proposed chapter 11 plan, Westmoreland’s lenders have agreed to acquire the company’s Canadian operations and mines in New Mexico and Montana in a proposed transaction that would reduce the coal-mining company’s debt. The agreement is subject to higher bids. A handful of other U.S. mines owned by Westmoreland will be marketed separately during the bankruptcy, court papers say.