DEWEY & LEBOUEF has filed for bankruptcy, with the firm’s UK operations simultaneously placed into administration, confirming the world’s largest ever legal failure.
The firm’s demise was confirmed last night via a Chapter 11 filing submitted in federal bankruptcy court in Manhattan. The move ends weeks of speculation as to when and how Dewey – buried beneath hundreds of millions of dollars of debt and with virtually all of its partners scattered to other firms since the start of the year – would enter its final phase, Accountancy Age’s sister publication LegalWeek reports.
Joff Mitchell of Zolfo Cooper is acting as chief restructuring officer, with Albert Togut of US firm Togut Segal & Segal instructed as bankruptcy counsel.
Meanwhile, the firm’s London and Paris offices, which are operated through a separately incorporated UK entity, were yesterday officially placed into administration, with BDO business restructuring partners Mark Shaw and Shay Bannon appointed joint administrators.
Dewey – which was created less than five years ago through the combination of Dewey Ballantine and LeBoeuf Lamb Greene & MacRae – said in documents submitted in conjunction with the Chapter 11 filling that the so-called “Great Recession” was a major factor in its demise.
At the same time, the firm acknowledged that its grand ambitions for growth and the lucrative pay guarantees doled out to high-profile lateral hires in an effort to achieve those ambitions were also to blame.
The filings state that Dewey entered into 100 contracts to guarantee compensation to partners, both lateral and legacy. “The full extent of the partner compensation arrangements is subject to continuing investigation,” the firm states in one of the documents submitted to the court.
For weeks, Dewey’s few remaining leaders have insisted that a bankruptcy filing was a last resort, and that they were doing all they could to avoid such a move. However, a glance at the firm’s grim balance sheet illuminates what a daunting task they faced – and that they knew as of 2 May that closing the firm, in or out of bankruptcy, was inevitable.
In raw terms, the firm’s Chapter 11 filing lists assets of roughly $193.2m (£123m) against liabilities of $245.4m – a deficit of more than $52m, as of 30 April. Dewey’s secured debt obligations total approximately $225m, with JP Morgan Chase, which Dewey says is owed roughly $76m, identified as the firm’s primary secured creditor.
The Am Law Daily reported last week three other banks that combined with JP Morgan Chase to extend Dewey a $100m line of credit – Citi Private Bank, Bank of America, and HSBC – had sold off their portions of that debt. JP Morgan Chase is listed on the bankruptcy filing as “as administrative agent and collateral agent for banks party to the credit agreement”.
Other secured creditors include the holders of some $150m in bonds Dewey sold in 2010 as the gap between its revenue and its compensation-driven expenses widened. Monday’s filing states JP Morgan Chase is acting as collateral agent for the holders of those bonds as well.
Three other secured creditors are listed on the filing: Winthrop Resources Corporation, which is owed nearly $36m; US Bancorp Equipment Finance, which is owed about $8m; and SunTrust, which is owed $3.5m. Dewey does not dispute any of those debts.
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Other liabilities include roughly $50m in “secured personal property lessors”, $40m in accounts payable, pension and deferred compensation claims, and a variety of rent, equipment fees and “claims of former employees and partners under the DL partnership agreement.”
On the plus side of the ledger, Dewey lists about $13m in cash, outstanding accounts receivables totaling $255m, “work in progress” and artwork whose value is unspecified.
Other assets listed include “potential estate claims and causes of action against partners and other third parties”.
An attached list of the firm’s 20 largest unsecured creditors is led by the Pension Benefit Guaranty Corporation, which has sued Dewey for $80m to cover the obligations of its underfunded pension plans. Other unsecured creditors include the landlord of Dewey’s 1301 Avenue of the Americas headquarters office, Thomson Reuters and Bank of America.
The Chapter 11 petition says Dewey expects to pay off its unsecured creditors, a group that includes banks, vendors and other law firms. In a press release, the firm said the filing was made “to preserve assets and wind down its business in the most orderly and efficient way possible”.
The release notes that 90 employees will stay on to help with that process and states much of that activity is expected to be finished within “the next few months”. The firm petitioned the bankruptcy court to allow those overseeing the effort to use available cash to keep paying salaries and benefits for those employees. Dewey general counsel, Janis Meyer, the firm’s recently appointed executive partner, Stephen Horvath, and its director of finance, Francis Canellas are among those still at the firm who will help guide it through the bankruptcy process.
The documents filed on Monday also detail Dewey’s negotiations with its creditors in recent months and steps it took to minimise the damage once it knew shutting down was a foregone conclusion. Those steps included selling the firm’s ownership interest in its Warsaw office to Greenberg Traurig for $6m and fetching more than $4m for its stake in its Russia and Kazakhstan offices from Morgan Lewis & Bockius.