The Heller Ehrman estate appears to have collected only $8 million of the $77 million owed to it by clients since its bankruptcy filing nearly three months ago, a monthly operating report shows.
Most of the firm's receivables, the largest portion of Heller's potential assets, are older than 90 days, which make them pretty stale. With no one to pound down the doors of debtors, bankruptcy lawyers said, there's a diminishing chance of collecting on those accounts.
"In a typical bankruptcy, account receivables are often only worth a fraction, perhaps 25 percent, of their face value," said Scott Bovitz, a bankruptcy specialist at Bovitz & Spitzer in Los Angeles who is not involved in the Heller case.
Clients are reluctant to pay for several reasons, he said. First, they worry they'll be sued by the estate for some reason, and they don't want to lose leverage.
Second, "They realize that the people who were there to press for payment aren't there to press for payment anymore, and they don't feel a loyalty to the institution — in this case Heller. They feel loyalty to their attorney and their attorney is somewhere else," Bovitz said. "The key collection person in all these matters is the partner in charge."
The operating report, due monthly, comes before a bankruptcy hearing scheduled Friday, when Judge Dennis Montali is slated to review several filings, one of which is a motion by Heller's creditors to have standing to sue former partners and Heller's banks.
The banks, Citibank and Bank of America, have partially opposed the motion, saying it's usually the debtor who sues to recover assets. If the creditors are allowed to sue, the banks say, the court should treat the suit like the debtor is suing. It appears they'd prefer to be sued only once.
On the collections front: The estate is owed at least $69 million in accounts receivable and has already given up hope on $12 million more, according to the report, which was filed in the U.S. Bankruptcy Court for the Northern District of California this week.
Shortly after filing for bankruptcy, Heller said it had about $77 million in accounts receivable and works in process. It also listed about $19.5 million in contingent AR/WIP, which usually involves the possibility of some future judgment or settlement.
There's no mention of contingent accounts receivable in the latest report. There also have not been any settlements with debtors, which would have to have been approved by the court.
The report comes six months after the firm's Sept. 26 dissolution. A dissolution plan at that time showed the firm had $103.5 million in accounts receivable and $71 million in works in progress as of Aug. 31, totaling $174.5 million. The dissolution plan predicted the firm would collect 90 percent of that — enough, according to the plan, to pay off its creditors.
But it appears that at least half of the receivables were either collected or written off before Heller filed for bankruptcy.
There's no indication any of the accounts receivable have been written off since the bankruptcy.
Thomas Willoughby of Felderstein, Fitzgerald, Willoughby & Pascuzzi, who represents the creditors, didn't return a telephone call. Nor did Pachulski Stang Ziehl & Jones' John Fiero, who represents Heller's estate.
Robert Izmirian, a bankruptcy lawyer and Buchalter Nemer of counsel in San Francisco, said it doesn't take a bankruptcy background to know when receivables are stale.
"This firm has been winding down for a while. All the low-hanging fruit would have been picked already," he said.
"Any law firm I know of any size has a management team that's very keenly aware of the aging of receivables. In or out of bankruptcy, once receivables go over 90 days, they fall off the table. It's clearly the case that stale receivables don't get collected."