The legal fees on the 12-year BCCI insolvency reached £100m this year, with Lovells taking the lion’s share of the cash, while Allen & Overy made a staggering £31m for less than two years work on the restructuring of Marconi. But will corporate restructuring and insolvency work see City lawyers through the downturn? Not quite.
One newspaper recently reported, quoting banking sources, that Slaughter and May and Clifford Chance would make £67m between them on British Energy’s restructuring. The Lawyer’s research reveals this figure is unlikely to exceed £10m. Clifford Chance is thought to have picked up £6m advising the company, while Slaughters, in its less lucrative role advising the Government, has made just £2.5m.
As the table shows, those law firms lucky enough to grab the major roles on the biggest restructurings and insolvencies of the year have earned just over £90m between them in the past 12 months. This is small beer compared to US bankruptcies and restructurings. In the first nine months of the Enron bankruptcy, the company’s law firm Weil Gotshal & Manges billed $53.6m (£32.5m), a third of this year’s UK total. And when cable operator NTL emerged from restructuring earlier this year, its US counsel Skadden Arps Slate Meagher & Flom billed four times that of UK adviser Travers Smith Braithwaite.
In the US, lawyers are much more central to the Chapter 11 process, carrying out many of the roles that are performed by accountants in this country. And they earn a lot more doing it.
“There are three reasons for this,” explains Cadwal-ader Wickersham & Taft London managing partner Andrew Wilkinson. “The first is that the US economy is much bigger and the scale of Chapter 11s over there dwarfs what’s going on in Europe. Second, there is a far bigger legal component to the process in the States. An administration has a much smaller degree of court involvement than a Chapter 11. Third, in the UK, the accountants are the administrators. You don’t have anything like that in the US. It’s more court-driven, they have a bankruptcy court and there’s a much more litigious culture, which all adds up to lawyers earning more money than they do in London.”
But John Verrill, head of insolvency practitioners’ association R3 and corporate a recovery partner at Lawrence Graham, believes that the insolvency market in the UK is growing, particularly in terms of corporate restructuring.
“Formal insolvencies are on the decline and the incentive to restructure is far stronger now following recent legislation,” he said. “Companies are waking up to the need to restructure a lot earlier. Ten years ago, Marconi would have gone the same way as Polly Peck.”
But as restructuring grows in the UK, so too does the propensity of US firms to steal all the business. They are more experienced in rescuing companies and advising a company’s litigious creditors.
As the table shows, Cadwalader Wickersham & Taft is the most visible law firm in the high-profile restructurings of the past 12 months, acting for bondholders on four out of these six high-profile jobs.