It appears as though Dewey & LeBoeuf’s hiring of bankruptcy counsel Albert Togut in April really was foreshadowing for a final filing. Despite many assertions to the contrary by firm leadership, of which all save for one already has jumped ship, the Wall Street Journal reported Friday that the New York law firm is possibly readying for bankruptcy.
The Journal reports that Dewey is preparing for a potential bankruptcy protection filing in the next couple of weeks, which would initiate liquidation of the firm’s remaining assets. In the past week, Dewey has engaged restructuring firm Zolfo Cooper to help it collect receivables and pay back lenders and creditors.
The law firm’s remaining partners and advisers reportedly aim to be ready to file by the end of the week, although sources told the Journal that the actual filing may not come until much later. A final decision about how Dewey officially will cease operations is still under discussion.
Only about 50 of the roughly 300 partners who began the year at Dewey still remain.
On May 13, recently departed members of Dewey’s now-defunct leadership group— bankruptcy specialist Martin Bienenstock and legislative and public policy group head Charles Landgraf—told the Journal that the plan is to liquidate the floundering firm without going through a formal bankruptcy process.
“Right now, we have no plan to file a Chapter 11 bankruptcy,” Bienenstock said. “We’ve had a completely nonadversarial relationship with our lenders, and right now the cash we’re using is the lender’s collateral. They have blessed our use of cash collateral to pay expenses. Their expenses, too, are much less because we are not in the courts.”
If successful, the liquidation strategy could save money and provide a better chance of collecting unpaid bills from clients to pay off the more than $225 million that the firm owes to creditors.
However, any remaining plan will have to be implemented by Dewey’s mergers & acquisitions department head Stephen Horvath, who is the only remaining member of the firm’s management group. Last week, Bienenstock signed on with Proskauer Rose while Landgraf left for Arnold & Porter.
Despite the departed leader’s remarks, the Journal said that a source indicated a bankruptcy filing is the more likely option. The firm will need to negotiate with landlords who could eventually seize office equipment in lieu of rent payments unless Dewey seeks bankruptcy protection, the Journal’s source said. And in order to wind down, Dewey needs computers and access to those offices. Helping with this wind-down is Joff Mitchell, a senior managing director at Zolfo, who currently is acting as Dewey’s chief restructuring officer. Additionally, the Journal’s source noted that Togut would handle the bankruptcy filing.
Bankruptcy or not, buzzards already have begun to circle the still-breathing corpus. Last Monday, The Pension Benefit Guaranty Corp. (PBGC), which oversees U.S. private-sector pension plans and interjects to cover plans when employers cannot pay the promised benefits, sued Dewey.
PBGC seeks to assume three of the firm’s pension plans, which it claims are underfunded by $80 million. The agency is worried that the sale of Dewey affiliates, which are partly responsible for funding the pensions, could make it more difficult for PBGC to recoup money to make up for the shortfall.
Dewey’s landlord also is getting in on the action. Property Group Partners sued the firm for more than $927,000 in unpaid rent in Washington, D.C., and seeks possession of the firm’s 140,000-square-foot offices on New York Ave.
Furthermore, the firm is potentially facing a class action lawsuit brought by a former employee as a result of its layoffs. Dewey has laid off 433 employees in New York, according to the Department of Labor.
And if that wasn’t enough, ABM Janitorial Services, which provided cleaning services to the firm, also sued Dewey in New York state court claiming it’s owed $299,000.
And for more from InsideCounsel on Dewey, read: