Dewey & LeBoeuf’s wind-down team has filed a motion calling for court approval of its settlement deal for former partners, arguing that financial commitments were obtained in a short space of time despite the “shock, anger and dismay” resulting from the firm’s collapse.
The motion, filed yesterday (29 August) in the US bankruptcy court for the Southern District of New York, confirms that over 400 partners have committed more than $70m (£44.2m) to the fund to pay off creditors while absolving participating partners of liability from the estate.
In a spirited statement aimed at winning over the court, lawyers at Dewey’s bankruptcy adviser Togut Segal & Segal claim that the settlement was reached despite partners having “dealt with the trauma of their failed firm” and having to “cope with the emotions of shock, anger and dismay resulting therefrom”.
They also state that partners of bankrupt law firms are not usually asked to contribute clawbacks until a year after the collapse, with payments often taking years to come in. The Dewey settlement, meanwhile, has been reached in under three months, with the US firm filing for bankruptcy on 28 May (29 May 2012).
The motion claims: “The debtor has sought, from the very start of this case, to achieve the most efficient, desirable, intelligent and rapid solution possible for the resolution of partner issues arising from the failure of the largest law firm ever to file for bankruptcy.
“Never before has a law firm debtor mobilized its former partners - who, out of necessity, have had to relocate to numerous firms, revive their careers, devote their attention to rebuilding their practices, dealt with the trauma of their failed firm, cope with the emotions of shock, anger, and dismay resulting therefrom - and, within just weeks after all of this happened, been called upon to reach into their pockets and agree to pay towards a settlement with creditors.”
The statement goes on: “That ‘ask’ was difficult for partners to accept. Many of them were also being asked to pay off personal loans they had to take to finance their capital contributions to [Dewey] that had to be repaid despite that their capital was lost in [Dewey]’s collapse. And all of them had to come to the realization that with [Dewey]’s bankruptcy, they also could potentially be saddled with adverse tax consequences to the extent they were to realize “phantom income” as a result of the cancellation of debt if or when [Dewey]’s debt is not repaid in full.”
The settlement fund broke the $70m barrier after originally breaching $50m, the original basic target set by the bankruptcy team (17 August 2012).
A hearing is scheduled for 20 September, while the objection deadline is set for 13 September.