Dissolution, Heller Ehrman, Thacher Proffitt & Wood

Anatomy of a Dissolution: Heller Files for Bankruptcy, Thacher Proffitt WARNS People to Come to Work

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Heller Ehrman’s bankruptcy has been a long time coming. The firm made the news official on Sunday:

Today the Dissolution Committee of Heller Ehrman LLP, in Dissolution (the “Firm”) authorized the Firm’s counsel to file a Petition for Reorganization under Chapter 11 of the United States Bankruptcy Code. We took this step only after very careful and extensive analysis.

But the firm’s Dissolution Committee also notes:

The Dissolution Committee’s decision to conduct the continued wind down of the Firm under the jurisdiction of the Bankruptcy Court was not prompted by the Firm running out of money. On the contrary, thanks to the dedication and tireless efforts of the Firm’s remaining employees who comprise the Liquidation Team, the cooperation of the Firm’s former shareholders, and the positive responses received from hundreds of the Firm’s former clients, collection of accounts receivable over the past three months has been strong. And going forward, we continue to expect collection of tens of millions of additional dollars.

After the jump, we post the full Heller memo and check in with Thacher Proffitt.


For employees of Thacher Proffitt, Heller’s bankruptcy could be a glimpse into their future. But TPW is still some way off from that. For now, TPW employees have been reminded that they still have to show up to work to collect their pay. The firm sent around this “clarification” over the weekend:

For clarification purposes, please note that as part of the 60-day salary continuation being offered to you by the Firm, you will be expected to report to work during that 60-day period unless notified otherwise.

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One tipster at least, is annoyed by TPW’s holiday greeting:

It seems the partners were surprised when they found out the staff they fired weren’t going to show back up to work so they started demanding that Human Resources threaten to take away WARN payments unless the fired staff to comes back to work.

The WARN Act is designed to protect FIRED EMPLOYEES, not to be used as a threatening tool by the firm doing the firing. These are people’s lives they’re messing with; people who need to look for work, not sit for 8 hours a day working for the people who fired them with no severance pay.

At least TPW isn’t bankrupt … yet.

Below, read the full Heller Ehrman bankruptcy memo:

HELLER EHRMAN — MEMO — BANKRUPTCY

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Today the Dissolution Committee of Heller Ehrman LLP, in Dissolution (the “Firm”)

authorized the Firm’s counsel to file a Petition for Reorganization under Chapter 11 of the United States Bankruptcy Code. We took this step only after very careful and extensive analysis.

The Dissolution Committee’s decision to conduct the continued wind down of the Firm under the jurisdiction of the Bankruptcy Court was not prompted by the Firm running out of money. On the contrary, thanks to the dedication and tireless efforts of the Firm’s remaining employees who comprise the Liquidation Team, the cooperation of the Firm’s

former shareholders, and the positive responses received from hundreds of the Firm’s former clients, collection of accounts receivable over the past three months has been strong. And going forward, we continue to expect collection of tens of millions of additional dollars.

Rather, in the opinion of the Committee, the Committee’s fiduciary obligations to all creditors of the Firm required that it file a Chapter 11 Petition at this time for two reasons.

The first reason concerns the Firm’s bank lenders, Bank of America and Citibank. As

we previously informed you, the banks claimed a security interest in the Firm’s accounts

receivable and all other assets of the Firm. On that basis, both banks took control of the

Firm’s ability to make any payments during the past three months, whether to former

employees, to other creditors of the Firm, or for the expenses associated with the ongoing wind down of the Firm. The Committee concluded, however, that if bankruptcy proceedings were commenced by December 30, 2008, a Bankruptcy Court is likely to void the banks’ security interest because the banks had terminated and released their security interest by means of a UCC filing more than a year ago and did not re-establish a security interest in the Firm’s assets until they filed a new UCC statement in early October 2008.

If the banks’ security interest were voided by the Bankruptcy Court, the banks would

be entitled to repayment of their loans only to the same extent as the claims of all other

unsecured creditors of the Firm are paid. They would not be entitled to be “first in line”

and to have their claims paid before all others. This means that significantly more money

might become available to pay the claims of the Firm’s non-bank creditors, including those of former employees, even after factoring in the costs of a bankruptcy proceeding.

The second reason concerns the Firm’s San Francisco landlord, 333 Bush Associates.

Over the past several months, the Dissolution Committee has successfully concluded

negotiations with (or otherwise successfully disposed of the claims of) nine of the Firm’s

landlords, resulting in those landlords receiving significantly less money than they would

have received in a bankruptcy proceeding. However, the Firm’s San Francisco landlord

elected to file suit in San Francisco Superior Court and, unlike any other creditor of the Firm, petitioned for issuance of a Writ of Attachment. Over the Dissolution Committee’s strong objection, the Court granted the landlord’s Petition on December 19th, giving the San Francisco landlord the right to be “first in line” in front of all other unsecured creditors of the Firm — including former employees — and to receive payment of more than $48 million.

That amount is several times more than the maximum amount it could receive in a

bankruptcy case, where its claims would be “capped” at a maximum of $16 to $18 million

and, as capped, would be paid only on the same basis, and only to the same extent, as the claims of other unsecured creditors.

Consistent with its fiduciary obligations to all creditors, the Dissolution Committee attempted to negotiate acceptable settlements of the banks’ claims for repayment of their

loans and of the San Francisco landlord’s claim for payments under the San Francisco lease, on a basis that would have been fair and equitable to all creditors of the Firm. The

banks refused to agree to settlement terms that the Dissolution Committee believed were in the best interests of the Firm and its unsecured creditors and therefore acceptable. And although the Committee was able to reach a settlement with the San Francisco landlord over the past week that would, in the view of the Dissolution Committee, have permitted equitable treatment of other creditors, a requirement of that settlement was an immediate cash payment to the San Francisco landlord. As a result of the levy of the landlord’s writ of attachment and internal bank procedures that (according to the banks) were triggered by that levy, the Firm was unable to make this payment before it became apparent that a Chapter 11 filing would be necessary in any event due to the banks’ intransigence during settlement negotiations.

Thus, despite extensive efforts continuing until the day of filing, the Firm was unable

to consummate settlements with its banks and San Francisco landlord on terms that, in the business judgment of the Dissolution Committee, were fair and equitable to all other

creditors of the Firm.

The Dissolution Committee had hoped to be able to wind down the Firm’s operations

without resort to the Bankruptcy Court, but by their conduct, Bank of America, Citibank and 333 Bush Associates made that option impossible. Therefore, in the discharge of its

fiduciary obligations to all creditors of the Firm, the Dissolution Committee authorized

today’s Chapter 11 bankruptcy filing.

We anticipate that the Bankruptcy Court will permit the Dissolution Committee to continue to manage the wind down of the Firm in Chapter 11 as debtor in possession, under the Court’s jurisdiction and the oversight of a Creditors’ Committee. We intend to provide future communications to all former employees about the status of the dissolution effort in a manner and at times consistent with the Chapter 11 process.

In closing, the members of the Dissolution Committee wish to express their hope that

each of you have a successful and less disruptive year in 2009. We wish you all a Happy and Healthy New Year.

Breaking: Heller Ehrman Files for Bankruptcy [AmLaw Daily]

Earlier: Anatomy Of A Dissolution: Heller Ehrman v. Citi and B of A

Anatomy of a Dissolution: Closing the Loop on Thacher Proffitt

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