This just in: As predicted by The Recorder last week, the defunct firm Heller Ehrman has filed for Chapter 11 bankruptcy protection. In a statement, former Heller partner Peter Benvenutti said the firm filed not because it has run out of money, but because its main two lenders -- Bank of America and Citibank -- refused to renegotiate the terms of a $5.7 million debt the banks say the firm owes as part of a long-term loan.
Another contributing factor: A judge's ruling last week that the firm's San Francisco landlord, 333 Bush Associates, was entitled to a $48 million writ of attachment -- meaning a portion of Heller's assets were immediately frozen, and Bush Associates became a secured creditor, ahead of dozens of unsecured creditors waiting in line for their money. (The firm's dissolution committee has settled accounts with nine other landlords, according to a 13-page declaration Benvenutti filed with federal bankruptcy court in California).
In his statement, Benvenutti stressed that the firm is collecting money regularly and expects to recover "tens of millions" in collections going forward. According to Benvenutti's 13-page declaration, the firm has $3.7 million in cash and expects to recover about $35 million in accounts receivable. The firm's liabilities consist of the $5.7 million it owes to lenders, $10 million in other accounts payable and $4 million in taxes, the statement says.
The statement also reveals how bad things have gotten for the 54 employees left at Heller. The firm has no cash on hand to pay them their regular salaries (due at the end of this week), and their main banks "swept all of the cash (approximately $6.5 million)" from the firm's accounts on Dec. 9 upon learning that the firm might file for bankruptcy that day. The firm filed first-day motions with the court asking to use cash collateral to pay the remaining employees (who have also been promised 100 percent retention bonuses in exchange for staying on).
The firm says it hopes to repay the bank lenders in the next three or four weeks.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.