Maybe it’s my fault, but I think I have been expecting too much from James Sprayregen.
For some reason the impression I have of Kirkland & Ellis’s head of bankruptcy and restructuring is of a red-headed whirling dervish with pure caffeine rushing through his veins. I imagine that he never eats, he never sleeps and, if an opposing lawyer does something he does not like, he will make them cry. I am even scared that the former high-school wrestler might get me in headlock if I ask a question that annoys him.
The man I meet is surprisingly quietly spoken and plumps for a diet soft drink rather than the quadruple espresso I had expected him to be flinging down his throat. It becomes clear as we chat that he is nobody’s fool. But what Sprayregen is really about is control.
Discussing the fearsome reputation some bankruptcy lawyers have (imaginary or not), Sprayregen describes himself as “constructively aggressive”. He adds: “If emotion is to be used, it should be used tactically as opposed to ad hoc or involuntarily.”
It is a tactic that has served him well, since Sprayregen has built up quite a résumé during his 18 years as a lawyer. Since joining Kirkland & Ellis in 1990 after a very brief spell at Rudnick & Wolfe (now Piper Rudnick), he has acted on the restructuring or bankruptcies of United Artists Theatre Circuit, Chiquita Brands International, AmeriServe Food Distributorsâ€¦ and the list goes on. This year alone has seen him as debtor’s counsel on a stream of huge bankruptcies, including the financial services group Conseco, apparently the third-largest in US history, as well as United Airlines.
The airline sector is a bit of a speciality with Sprayregen, who acted on the Chapter 11 case of Trans World Airlines in 2001, which was eventually sold to AMR Corp, owner of American Airlines, which ironically is now having to fight to avoid bankruptcy. But that is rival Weil Gotshal & Manges‘ problem now, after it was recently mandated to advise the company.
For such a tough cookie, then, it is slightly disconcerting to learn that bankruptcy was not Sprayregen’s first love – real estate was. But a lack of room and a drop in work meant that his first law firm, Lord Bissell & Brook, was unable to accommodate his ambition. “I wanted to be a real
estate lawyer because I’d taken a lot of classes at law school,” says Sprayregen. “But [Lord Bissell] said it didn’t have any room in its real estate department at that time. It wasn’t busy, but bankruptcy was.”
Of course, there will be many a chief executive of a battered company out there who will be thanking God that there was no room in the real estate department, although they may shudder at the thought that Sprayregen did not really want to be a lawyer at first.
“My Dad’s a lawyer, and in fact on my mother’s side my grandfather was a judge,” he says. “And neither of those of things have anything to do with me becoming a lawyer.”
In fact, law just seemed like a good idea at the time for the history major. “I actually had no burning desire to become a lawyer,” Sprayregen explains. “Even after law school, and even after becoming a practising lawyer, I never actually said, ‘this is what I want to do with the rest of my life’. It kind of just happened over time.”
With hindsight, it is perhaps a happy accident that Sprayregen moved into bankruptcy and restructuring in the first place. He is a big biller now, but frankly, in the 1980s, lawyers in this area were not exactly enjoying huge fees.
Which brings us to the rather prickly subject of whether it is ethical to pay bankruptcy and restructuring lawyers millions of dollars in fees when the companies they are advising are not only debt-ridden, but usually have to lay off hundreds, if not thousands, of staff.
Prior to the Bankruptcy Reform Act 1978, professionals were paid in accordance to the “economy of administration standard”, which was aimed at conserving a company’s assets. It meant, however, that professionals, including lawyers, were not paid at market rates. As Sprayregen explains: “Anyone who was a very good professional at the top of their market didn’t go into bankruptcy law. They went to practise in other areas and, as a result, you had – and this isn’t being pejorative to the bankruptcy bar – a less high-quality bar, and fewer people were willing to spend time in the area.”
However, after the Bankruptcy Act was shaken up, fees moved in line with what other, more well-paid lawyers, were enjoying. “As a result,” says Sprayregen, “you literally saw all the big firms getting into the bankruptcy business, where pre-1978 they weren’t in it. The quality of the bar in this area, if I do say so myself, has improved dramatically.”
So have the fees. The Lawyer reported (5 May) that on the Conseco case, $10.2m (£6.24m) in fees and expenses had already been notched up, with $5.67m (£3.47m) billed by Kirkland & Ellis. On United Airlines, the firm has so far seen its coffers swell by $5m (£3.06m). For United, labour costs are the biggest drain; its staff unions have agreed to annual paycuts totalling $840m (£518.6m), but the airline needs to save $2.6bn (£1.59bn) a year.
Bearing this in mind, $5m seems like a drop in the ocean. But for those lefties among you, the fact that since 11 September 20 per cent of United Airlines’ staff have lost their jobs may stick in the craw. But Sprayregen says: “Bankruptcy is incredibly time-consuming, it’s emotional, it’s very hard work, it’s emergency-based, it’s around the clock and you get what you pay for.”
I think this is what he means by being ‘constructively aggressive’, although his point is valid: after all, a few million dollars is a small price to pay to save thousands of other jobs and to ensure the future of a company.
He adds: “If we’re going to motivate the lawyers in our firm to disrupt their lives and spend their time practising in that area, we’re going to have to compensate them accordingly.”
How disrupted his team is going to feel in the next few months, however, is debatable. Sprayregen thinks there may be a slowdown in the giant cases thrown up by past two years. His predictions will probably be spot on, since Sprayregen was certainly on the ball in terms of estimating the impact of the dotcom boom and bust.
Laughing, he says: “I joked to my partners during that time that it was their job to create inventory for me.” He quickly adds, though, that no lawyers at Kirkland & Ellis acted on any of the recent major disasters.
So while there may be a slight dip in his area as the economy finds its feet again, there will always be room for the Sprayregens of this world. “Bankruptcy and restructuring are really just the workings of capitalism,” he says. “By definition, capitalism is about allowing people to take risk, and with risk comes failure. If there’s no failure, you’re not taking enough risk. If there is failure, you need an organised system to deal with it. If you have that then people aren’t afraid to take risk the next time around.”
And while Sprayregen might be a painful reminder that business can go wrong, I am sure the companies he has helped would not want it any other way.
Kirkland & Ellis