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If You Want to Earn Money, Go Bankrupt

It may sound counterintuitive, but if you're a large law firm that wants to earn megafees, go bankrupt. That is, continue to take on bankruptcy matters that are decreasing in numbers but not fee size, as reported in this article, Bankruptcy Work Falls, but Megacases Still Provide Hefty Fees (NLJ, 1/10/07). From the article:

Although corporate bankruptcy filings dropped overall last year, firms handling the top cases continued to collect millions of dollars in billings from a handful of key cases.

According to the article, debtor's counsel representing the company in bankruptcy typically claims the largest share of the legal work and billings from a bankruptcy. That's not surprising, because the debtor is essentially captive, paying legal fees out of the bankruptcy estate that also goes towards repaying creditors. Still, counsel for major creditors, with lots of money at stake in the bankruptcy, also command top fees. 

Consider some of the fees generated in some recent bankruptcies: 

Kirkland & Ellis of Chicago collected $90.7 million for the three-year restructuring of United Airlines' parent UAL Corp. of Elk Grove Township, Ill., and Philadelphia-based Saul Ewing requested a total of $50.6 million for leading the restructuring of Toledo, Ohio-based Owens Corning.  Next, Jones Day collected $43.5 million in fees in the case filed by industrial aluminum products maker Kaiser Aluminum Corp. of Foothill Ranch, Calif.; Skadden, Arps, Slate, Meagher & Flom has so far asked the court for $34.8 million for the reorganization of New York-based international commodities broker Refco Inc., which officially emerged from bankruptcy during the last week of 2006; and New York's Weil, Gotshal & Manges requested $23.3 million to help reorganize Lancaster, Pa.-based floor products manufacturer Armstrong World Industries Inc.

Was it worth $90 million in legal fees to restructure United Arilines or $50.6 million to restructure Owens Corning? Did these law firms earn their pay and add value by helping these companies to get back on their feet to move to a more profitable future? Or is this simply an example of law firms collecting fees because their bills are subject only to scrutiny of the court and paid from the captive bankruptcy estate? Would bankruptcy fees be this high if law firms were paid directly by clients? What do you think?

Posted by Carolyn Elefant on January 10, 2007 at 04:55 PM | Permalink | Comments (1)


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