A US bankruptcy court has approved $2 billion in new financing for troubled retail giant Kmart Corp as well as up to $150 million in bonuses to help persuade key executives to stay with the firm – despite strong opposition from union leaders.

Bankruptcy Judge Susan Pierson Sonderby backed the financing deal which will allow Kmart to stay in business, pay employees and stock shelves at its network of 2,100 stores – although hundreds of unprofitable outlets are facing the axe.

The court dismissed complainst about the bonus plan by the Union of Needle Trades, Industrial and Textile Workers, which represents 3,000 Kmart distribution centre employees.

The union's attorney claimed those likely to get the money were to blame for the company's perilous financial state but Kmart's bankruptcy attorney said the employees were wanted by other companies and said creditors and bankers backed the incentives plan.