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Leaked Document Gives Details of Heller Debt, Assets
The Recorder
October 10, 2008
A leaked copy of Heller Ehrman's dissolution plan shows a firm that has a good chance of avoiding bankruptcy -- if it can collect unpaid bills and liquidate assets with the success promised on paper.
The plan puts Heller's assets at $258 million and its liabilities at $72 million, three-quarters of which is money owed to the firm's banks, Bank of America and Citibank. The document predicts a 90 percent success rate in collecting on its $174 million in accounts receivable and work in progress.
"If it goes well and they're taking the right steps to do this, they may be able to avoid bankruptcy," said J. Scott Bovitz, a bankruptcy lawyer with Bovitz & Spitzer in Los Angeles who is not involved in Heller's dissolution, but read the purported dissolution plan leaked on Thursday to The Recorder and other media outlets.
The firm did not respond to requests for comment on the document, which was apparently written after the Sept. 26 dissolution vote, but may not be the latest draft of the plan.
While the firm is solvent on paper, there is still a chance for a bankruptcy, Bovitz said. Three creditors who are owed a total of more than $13,475 can file an involuntary bankruptcy petition and it's not clear how much of the firm's outstanding bills will be collected or whether the firm will be able to cheaply rid itself of its real estate.
The assets also seem overstated, Bovitz said. Once a firm enters dissolution mode, it becomes much harder to recover the full value of bills, equipment and furniture. Still, with Heller's assets listed at about $186 million more than its liabilities, the firm doesn't need to recover the full value of every asset.
"There's a lot of cushion," Bovitz said.
There is no apparent mention of the costs of real estate leases or employee pay through the end of November in the document, so it's impossible to know whether those costs could tip the balance.
"The devil is in the details," said Stephen Snyder, the former head of Brobeck, Phleger & Harrison's dissolution committee, when asked to handicap Heller's situation.
The document notes that the four members of Heller's dissolution committee -- Peter Benvenutti, Jonathan Hayden, Lynn Loacker and Paul Sugarman -- are being compensated at $450 per hour for winding down the firm. A call placed to Benvenutti was not returned.
Two-thirds of Heller's assets are in accounts receivable, almost $104 million, and work-in-process, nearly $71 million. The plan says the firm expects to collect 90 percent of the receivables billed in the last 120 days, and expects to collect half of older work.
"That 90 percent is a bit optimistic," said Alan Ramos, the managing partner of Nevin, Ramos & Steele in Walnut Creek, Calif. Ramos worked as a consultant collecting receivables for Heller in the late '90s. Still, he said, it's impossible to know that the firm won't collect the full 90 percent without knowing more about the individual bills.
Snyder agreed: "It all has to do with the nature of client relationships and the amount of cooperation that the departing partners give," he said. "If they're helpful, there's lots of room to be optimistic."
Today, four Heller partners, complex commercial litigators Peter Hecker, Neil Popovic, and Anna McLean and tax partner Joanne Garvey will join Sheppard, Mullin, Richter & Hampton. Hecker, Popovic and McLean defend consumer class actions, while Popovic's practice also includes some international dispute resolution work.
Orrick, Herrington & Sutcliffe picked up 27 Heller partners Thursday, including the three most recent former chairmen, Barry Levin, Robert Rosenfeld and M. Laurence Popofsky. That group also includes eight practice heads.
The dissolution document gives the committee the power to file for Chapter 7 or Chapter 11 bankruptcy on behalf of the firm. The document also names Chief Operating Officer Brad Scott as the manager of the firm and Chief Financial Officer Richard Holdrup as the deputy manager.
The amount owed to the banks was $45.8 million as of Sept. 24. The plan also lists dozens of unsecured creditors, the top five of which are owed more than $100,000. Williams Lea Inc., a business process outsourcing company, is owed $2 million.
Payment of accrued and unused vacation time is promised to employees in the plan, with a provision that allows Scott to modify or amend such payment. Accrued vacation became an issue of contention late last week when firm management sent out e-mails and indicated to employees that the banks may not let the firm make such payments.
