Anatomy of a Dissolution: Heller Files for Bankruptcy, Thacher Proffitt WARNS People to Come to Work
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.
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
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
(93) Comments
Comments
Not mother?
These pretzels are making me firsty
boring
BITCH SPREAD THE BUTT CHEEKS SO I CAN SMELL THE JUICY INSIDES!
Who would ever expect to get your 60 days severance without showing up for work. WARN is supposed to warn you that your job will disappear in 60 days. Use your sick leave to go on interviews or do what you can in the meantime, but if you don't show up to work, you don't ever get paid, especially from a company that is failing.
5-ANNOYING PARTNER ALERT! PArtners--gET off OUR site!
6 - why do you think this site is for associates only??
Wow, the nerve of this firm to expect people to work for the money the workers receive from their employer. Fascists!
6 is an idiot. This site needs more partner input, whether or not 5 actually was a partner...
Too long, didn't read.
I'm tired of all this sad layoff news.
would you recommend law as a profession?
12 - not corp. law...
NY to 190!
You guys just kept on sucking that partner cock, while they bitched and whined about this, that, and the other goddamn thing that was either totally irrelevant or not within your role on the matter. You all had another soda/candy/burger--stayed a few more hours, too.
You kept on eating that that shit right up with what was left of your youth and health running down your fat bloated thighs like the shit-lube leaking from your ass after "bonus" announcements. Kept on stressing, worrying, having no life, never seeing the fucking sun--just so you could pay down loans with the half you got after you pay 50% of your income to the government so someone's babydaddy was able to buy some new nikes and a flat screen that was nicer than yours.
You were all a bunch of fucking chumps.
But now you're fired, too.
12: oh hells no.
Partners should stay the fuck off this site because their lazy asses ought to be drumming up work. If they can't bring in enough work to keep the people they hired, then they shouldn't have their jobs.
Also, just because I need to get this off my chest, reporting about the recession is, um, EXACTLY WHAT IS LENGTHENING IT. Seriously, did no one in this country take basic economics??? The recession ends as soon as we decide it does. We have nothing to fear but fear itself -- apparently the father of Big Government himself had a better understanding of macroeconomics than the entirety of the modern media. Bunch of fucking morons...
15, slight correction: 50% of our salaries went to bail out Wall Street, not to babydaddies. The babydaddies are on the streets starving to death, because giving money to people who actually need it is somehow "socialism" while giving it to billionaires is "saving the economy" (which, in case you hadn't noticed, has not been saved).
And, for the record, some of us got fired for refusing to suck partner cock. Damned if you do, damned if you don't...
All these layoffs are counted in the 1,700 (and counting) in the http://www.lawshucks.com BigLaw Layoff Tracker, with cites back to the original stories.
16 it's not that easy. For example, spending won't cure the trade deficit.
well, isn't Obama going to save us?!!! God save the USA.
The Dissolution Committee is wishing us a Happy and Healthy 2009!!! WTF - just give me my money, then I'll be happier and healthier!
I expect Obama to make "NY to 190" a reality.
TPW employees were told their last day was December 31st. The next day they were told, "oops! you have to come back on Jan 5th."
What a joke.
It will be funny when one of those fired employees sabotages TPW's computer system. I can't wait to see that.
This would never happen in Texas.
Was laid off by TPW last July. I'll show up for 60 days more pay.
I'm one of the laid off Thacher associates, and if they want me to show up, I'm showing up. As far as I'm concerned, if they're paying me then I still have an obligation to keep coming to work and to be prepared to actually do some if asked. For practical purposes I can't imagine that I'll be doing a whole lot of legal work, given that I was told by the chairman of my department that my job for the next two months is finding a new job and that I can have off as much time as I need to interview. I can't imagine why everyone is bellyaching about showing up. In nearly every other profession, when you get fired that's it -- no one is required to give you severance or anything other than a box to put your crap in as security escorts you out. Severance is something that firms extended as a courtesy to associates. Times are tough and the firm can no longer afford that courtesy. I'm just grateful I'm getting my 60 days, unlike those poor bastards at Thelen and Heller.
Can some please hire the 2008 Heller summer associates? I hear they got screwed.
If TPW is closing shop on Dec 31 and they want the employees to show up on Jan 5, will there still be a 2 month / WARN pay ? Does TPW ever plan to make an announcement ?
CAN SOMEONE PLEASE EXPLAIN THIS TO ME, IS TPW VIOLATING THE WARN ACT ? "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."
29, it's a law, look it up, you lazy fool.
LATHAM SUCKS!!! STOP THE PAY FREEZE YOU GREEDY MOTHERFUCKING PARTNERS.
16...you are an idiot. The recession ends when we say it ends? Yeah, and my debt disappears when I say it does...sorry Visa and Amex, I no longer owe you, so I can now go out with all my extra coin and buy that plasma screen and the Denali....Dude, this whole damn country is overleveraged. Not until this debt gets paid down do people start spending again (2011? 2012?). No spending = recession. It's basic economics....
MysTTTal, please, the suicide thread. First year here with 150k debt. If I get laid off, it's kill self time.
THERE'S BLOOD ON THE STREETS IN THE TOWN OF NEW LATHAM.
29, exactly how much work do you think is going over at TPW with bulk of firm moving over to Sonny in a couple of days? What makes you think that the poor folks can't job hunt while in office & take advantage of office facilities?
29 - I believe WARN only requires 60 days notice before the mass layoff. Nothing says you can't be fired during that period for not doing your job.
29, sorry - forgot to respond to your Q re: WARN Act. It's primary purpose is to provide advance notice of mass layoff so that workers can look for another job, etc. Not a substitute for severance or reason to stop going to work.
TPW partners are lowlifes. End of story. Sonnenschein partners are idiots for bringing any of them on as partners. They ran TPW out of business - why are they being offered new partnerships???
Two words, 38: portable business. TPW laterals will not have any say in how their new home is run; they'll contribute business, take their draws, and shut the fuck up about it all like good little servants.
I predict a wave of suicides among the young and highly educated as we lose these high paying jobs that were supposed to pay off our debt.
How the fuck could anyone think it'd be a good idea to make debt people acquire at such a young age non-dischargeable in bankruptcy? My private student loans are at 9%. Did making this debt non-dischargeable really push my rate down? I think I'd rather have it at 11 or 12 and be able to get rid of it if things don't pan out.
Stupid fucking government.
40 -- Who thought non-dischargeable student loans were a great idea?
The gov't who enjoyed making money off the people who held those loans, obviously. Ahhhh, "lobbying" at its best.
First year biglaw here with 150k debt. If I get laid off, what are my options besides kill self? At least I'll die with the satisfaction of fucking sallie mae.
Suicide is painless...
I hope you guys are joking about the suicide shit. Virtually all of you will go on to have good careers in the law and will be able to pay your student loans. The average family of four in this country earns about 50K. Get some perspective, please!
44 - YES!
44: I too hope that talk of suicide is a joke (tasteless as it may be). However, you do realize that your average family of 4 earning @50K doesn't necessarily have an average of $150k in school loans? If you're gonna cite stats, pls keep it in proper context. Have a good one.
What is it really like for TPW associates? From the point of view of a litigator, there is still work on cases that needs to be performed. No judge is going to force a trial, but there will be motions that need to be adjourned or responded to, depositions that need to be taken etc. I think the people there will learn that most big law fire drills are nothing but bs, because few things are that important, but some work will still have to be done. So how is that work being dished out? Who is doing it?
46 - they have it worse. 4 mouths to feed, 4 bodies to clothe, at least two educations to save for, etc., etc., etc. The recession won't last forever and you'll get to pay off your debt. In the meantime, manage your cash a bit better and live at a pace that allows you to put more than the minimum into your monthly loan payments.
42/46, stop your crying about loans. No one forced you to take them out. You could have worked before or during school to save money or done well enough in undergrad to get some scholarships. I've got as much debt as the next guy but I took it on knowing full well that I would have it hanging over my head come good economy or bad. Here's a quarter, call someone who cares...
44/48: And why do you assume that every associate with $150k of debt is single with no children and living large? For shame, counselor.
49=Racist Mormon
49: for the record, I'm not 42, just 46. And btw, I lived damn frugally post-grad and made huge dent in my own debt. So don't need your quarter but thanks anyway!
44 - Statistics... not all are single with no kids. Tiz VERY true. BUT, tiz also true that the economy will come back and that debt will get paid off by those lucky enough to work in big law. SO, in the end, those making $50k are in a much tougher spot. MUCH.
I agree with 51 who nailed it.
Um...you geniuses ever hear of this novel thing called forebearance or deferment? If not, go ask Ms. Sallie Mae about it.
Too busy "working" apparently...
Sallie Mae sounds like she is a milf. I think I will nail her while my sheep watches.
Right 55, we can just defer and forebear it away. See, the problem is, that's not an actual solution.
Yah 49, there's inherent risk in any big decision like this. But if you borrow to start a business, or buy a house, you can discharge your debts in bankruptcy if it doesn't work out. There is no reason why education debt should not be the same way. To the contrary, it would force banks to actually consider whether the borrower has a real chance of paying it back.
47: I was at Heller during the dissolution so if TPW is in any way similar, I can give you some perspective. We had a group of attorneys actually at trial when the dissolution was announced. They obviously stayed and finished. We also had some typical fire drills that needed to be taken care of in the short term but most real work was delayed until the dust settled and it could be managed from a new firm. The vast majority of associates and staff did the bare minimum during the (abbreviated) 60 day period. There was plenty of time to job hunt and interview. The sad part is that a lot of folks are still looking. TPW associates and staff should be worried about the 60 days getting cut short. If the banks swoop in on the LOC, as happened at Heller, then they will end up with less time than they might think. Anyway, it's all a big mess. Having been there, my heart goes out to all of those who are living with the uncertainty. It sucks. The only good news is that it will pass, you will land a job and things will be better some day. Best of luck.
definitely not advocating the suicide route, but 42 makes me curious: when you die, do your student loans just go away? or would your family/next of kin/estate be responsible for it rather than you just getting off scot-free? just a thought - don't kill self till you know who else you're f*cking over in the process :-)
61 - your estate is responsible for the loans. but if you have that much in loans chances are your estate will be insubstantial and ms. mae gets the pickle.
61 no one else is responsible unless they cosigned. and not too many of us recent law grads with 150k debt have much in the way of assets for sallie mae to take.
5: So, the firm's failure forces me to find a new job and I'm supposed to use my accrued sick time to cover for that time? Wow. You've taken a big ol' gulp of the Kool Aid, haven't you?
64 - why do you feel that you are entitled to anything?
64: If they'll let you use time, firm resources or anything else in order to look for a job, you should consider yourself lucky.
58,
Well, in 55's defense, he/she's just following the example currently being set by some of America's largest companies. If I make a mess and borrow too much money, the government will step in and take care of it for the time being. Right?
I wish you would step back from that ledge my friend...
You guys just kept on sucking that partner cock, while they bitched and whined about this, that, and the other goddamn thing that was either totally irrelevant or not within your role on the matter. You all had another soda/candy/burger--stayed a few more hours, too.
You kept on eating that that shit right up with what was left of your youth and health running down your fat bloated thighs like the shit-lube leaking from your ass after "bonus" announcements. Kept on stressing, worrying, having no life, never seeing the fucking sun--just so you could pay down loans with the half you got after you pay 50% of your income to the government so someone's babydaddy was able to buy some new nikes and a flat screen that was nicer than yours.
You were all a bunch of fucking chumps.
But now you're fired, too.
Elie is the Jason Blair of blogging. Damn affirmative action.
Dear 59: If you borrow for a house and can't repay the bank can take your house away regardless of whether you file for individual bankruptcy. Certainly there is injustice in not being able to discharge student loans in bankruptcy but why would a lender ever lend if you could get a discharge--these loans are unsecured.
61,
Death of the borrower is usually covered in the promissory notes. The answer, as always, is that is depends on the lender. Some of my debt goes away entirely if I die. Some of would be charged against my estate. In any case, no one else is on the hook, unless they co-signed. In which case, a death doesn't affect the lending relationship one way or another because the co-signor is usually primarily liable as well.
Why is 61 posting here if he or she didn't go to law school?
73: He or she plans on going to law via loans and offing him/herself at graduation.
This is my favorite part of the Heller memo:
"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."
Someone at Heller did not verify the status of the banks' UCC filings. Query whether Heller needed to dissolve under these circumstances. Is this an example of colossal incompetence or just what A-List firms do all the time?
67, not only do you not understand fiscal and monetary policy, you can't even draw a proper analogy. Useless to even explain. Don't needlessly waste any more brain cells this NYE.
75: "query whether"? r u shitting us? and where did you get the idea that heller was a-list?
75: I had the same thought when I read the paragraph you quoted. Who at Heller was asleep at the wheel?
75 -
I'm not in bankruptcy, but didn't Heller have to go BK to take advantage of the trustee's strong arm power to knock off any allegedly unperfected security interests?
Also of note, I was not aware that debtors have "fiduciary duties" to their creditors. Gotta let all my clients know about that turn of events. Unless "creditors" refers to partners.
If the UCC's didn't get properly filed, that's the bank's fault and problem.
It was widely held until recently that there are fiduciary duties to creditors when you are in the "zone of insolvency," but a recent case in Delaware called that doctrine into question. http://www.cwt.com/assets/article/070307RapisardiNYLJ.pdf
What is the average student loan debt for kiddos graduating from law school. Is it really $150,000 these days?
Serious question: what happens if you just plain can't pay your student loans? You have no assets, get laid off, can't find another job, go into bankruptcy and don't get the loans discharged, so you have no credit, no job, nothing to your name and 100k of debt over your head. What happens then? Supposedly we don't have debtors' prisons in the US.
79 - Correct. And that's what they're doing.
79 - Correct. And that's what they're doing.
81 - I'd say that is an accurate ballpark figure. Those loans are all held with an interest rate between 5% and 10%.
27 - Amen to that! I know some of us incoming associates are still looking.
It's not so simple for staff though, the unchosen staff (those not part of the dissolution team) run the risk of being docked for any time taken for interviews or potentially fired. The misinformation or lack of consistent, concrete information with regards to the unchosen by human resources has created an atmosphere of hostility, which is palpable. A truly unfortunate situation all around and why SNR would choose to accept to start off in this manner is mystifying. Maybe they're handing out bullet proof vests at orientation?
TPW staff and associates still have not received any documentation that the firm is dissolving or that they have been laid off. Calls and e-mails are being ignored.
Sonny's press release states that for the time being- there will be 2 NY offices- so that means TPW's offices on Jan 1 will be officially Sonny's office. What happens to staff and attorneys that didn't make it? Are they even allowed to go to the office on Jan 2 to continue working to get their 60 days pay?
88
Welcome to the crazy and wacky world of law firm dissolution!
TPW doesnt care about anyone except for themselves. From HR to Finance, they all care about themselves. All the partners care about is paying their fat mortgages while the little people that slaved for them will dissolve. The moral of the story....GREED
It amazes me that the postings on this site are by legal professionals. Now I understand all of the lawyer jokes I've heard over the years. It's amazing how empowered you guys appear to be behind this shroud of anonymity. What a bunch of dishonorable whiners most of you are.
I am appalled that the people commenting here are law school graduates. So manyh of you are a bunch of spoiled, "entitled" brats who apparently can't write a sentence or even a phrase that doesn't include profanity and/or stupidity. I don't have a law degree, but I hold myself far above what appears here.