Old Corporate Loans to Execs Still Stand

[Yo_Mama_Been_Loggin]

NEW YORK - Corporate loans to executives may seem like relics, remnants of the go-go years when executives such as WorldCom Corp.'s Bernie Ebbers and Tyco International Ltd.'s Dennis Kozlowski treated corporate coffers as personal piggy banks.

But the loans haven't gone away. In fact, a handful of companies with shaky finances forgave millions of dollars in loans to their executives in recent years.

Corporate reform law Sarbanes-Oxley made new loans by a company to its executives illegal. But loans made before the law went into effect July 30, 2002, were allowed to stand. The existing loan agreements cannot be modified in a "material" way, even if the modification benefits the company.

Does forgiving a loan entirely count as a material modification? That "is and has been an open and debatable issue, one of the things lawyers scratch their heads about," said Bryn Vaaler, a partner in the corporate group of the Minneapolis office of the law firm Dorsey & Whitney LLP.

There's no case law to settle the matter, so companies continue to forgive loans to their executives.

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