Dewey tries to talk London partners into $103m settlement
13 July 2012 | By Joshua Freedman
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Dewey & LeBoeuf’s US bankruptcy chiefs may attempt to sell the defunct firm’s $103m settlement deal to London ex-partners today (13 July), as it emerges that some former City partners are likely to snub the proposal.
New York leaders had scheduled a conference call this afternoon for former members of the UK LLP in which senior figures in Dewey’s global wind-down team were expected to argue the case for partners to sign up to the settlement, which absolves partners of future liability if they give back a cut of their earnings.
However, there is currently confusion over whether today’s meeting will take place, with e-mails being circulated among partners this week attempting to establish the situation after a call was scheduled and later cancelled.
The muddle comes amid a sceptical reception towards the proposed deal from City partners, with some former partners telling The Lawyer they were unlikely to show much interest in the offer or felt it would be badly viewed in London.
The deal, details of which were first revealed earlier this week by The Lawyer, gives partners the option of paying a proportion of their 2011 and 2012 income from the firm to the estate in order to absolve them of future liability (11 July 2012).
Partners wishing to participate are required to give back between 10 per cent and 30 per cent of their total earnings for the two years, with the percentage depending on how high up the income scale they were. Those who took home more cash have been asked to give a larger proportion, with a minimum payback amount set at $25,000 (£16,000) and a maximum at $3m (£1.9m).
A former UK partner commented about today’s potential call: “It’s like me explaining to you why you should buy my car.”
Another non-UK partner said he had spoken to twelve global partners including two in London since the deal was announced on Wednesday (11 July), with all of them saying they would refuse to opt in.
The partner said: “People are saying, it’s better off with a Chapter 7 trustee than with this whole circus. It should have been like that from the start. They wasted millions and millions of dollars. I regret dialling in yesterday [Wednesday] and wasting two hours of my time [listening to the announcement on a conference call].”
It has emerged that former executive partner Steve Horvath is being paid $50,000 (£32,460) per week for his role in the wind-down, with bankruptcy counsel charging up to a reported $935 (£607) per hour and restructuring consultancy Zolfo Cooper up to $825 (£536).
It is still unclear whether former partners of the UK LLP, which covered the London and Paris offices, are liable for future clawbacks if the estate chooses to sue them, and therefore whether it is in UK partners’ interest to pay into the settlement fund.
Former partners have previously said they do not expect UK members to be liable as the UK LLP was a separate partnership from the US arm, but Dewey bankruptcy chiefs have argued that City partners benefited from US-originating business and money and should therefore contribute to the estate. Meanwhile, the matter is complicated by the fact that a number of senior London partners were members of both the UK and the US LLPs.
Furthermore, Togut Segal & Segal managing partner Albert Togut, Dewey’s US bankruptcy counsel, told partners on Wednesday that it reserved the right to sue all partners under the unfinished business doctrine, even if they sign up for the settlement. The doctrine allows a bankruptcy trustee to claim partners’ profits from business generated at the old firm if the work was carried out at a new firm.
The offer from bankruptcy chiefs has been met with stiff opposition from City partners, with another partner commenting: “They’ll pursue whatever theory they have to get money off you.”
It is thought that today’s call was planned as a one-way announcement that would not allow partners to argue back with proposed amendments, a similar setup to Wednesday’s conference call for global partners.
The bankruptcy team must approve the deal by 31 July to prevent the case from converting into a Chapter 7 bankruptcy, with partners forced to pay a 25 per cent premium if they choose to participate after the 24 July deadline for opting in. The firm has to raise $50m (£32m) to gain court approval but is aiming to bring in upwards of $103m (£67m).
A former partner said: “The deadlines are such that an agreement has to be reached at the end of this month. I don’t think there will be any opportunity to change it. I expect there’s going to be very strong resilience to changing the terms of the settlement.”
Togut and Dewey general counsel Janis Meyer are expected to be among the figures addressing partners if the call takes place today.
Former Dewey chairman Steve Davis has been excluded from taking part in the settlement and will still be liable to be sued (20 June 2012).
The US firm filed for bankruptcy in the US and administration in the UK in May (29 May 2012).
Togut could not be reached for comment.