Contact: John Hartgen
703-739-0800
STUDY FINDS
NUMEROUS VARIABLES INFLUENCE TOTAL COST OF PROFESSIONAL FEES IN CHAPTER
11 CASES
size='3'>December 7, 2007 Alexandria, Va.
size='3'>— The results of a ground-breaking study funded by the
American Bankruptcy Institute Endowment Fund revealed that numerous
factors, such as the presence of creditors’ committees, influenced
the total professional costs of chapter 11 bankruptcy cases. While
previous studies have primarily focused on a company’s asset size,
number of firms involved in the case and the duration of the proceeding
as the primary factors influencing the total cost of professional fees,
study reporter Stephen
J. Lubben, Daniel J. Moore Professor of Law at
Seton Hall University School of Law, looked at numerous factors in
examining more than 1,000 chapter 11 bankruptcy cases that were filed in
2004.
“The fee study
represents the most comprehensive set of data of a large sample of
chapter 11 cases ever compiled by an independent empirical study,”
said Claude
“Chip” Bowles Jr. of Greenbaum
Doll & McDonald PLLC (
w:st='on'>
size='3'>Louisville
w:st='on'>
size='3'>Ky.
chairman of ABI’s professional fee study advisory board. “It
constitutes a vital source of information about both the implications of
the compensation of professionals in chapter 11 as well as the practice
of chapter 11 cases in general. The high quality and vast quantity of
data gathered by the fee study shows that ABI’s faith in the
project and the reporter was well-placed.”
Previous studies of
professional fees in chapter 11 cases over the past 20 years had
examined significantly smaller sample sizes, ranging from nearly 25-75
cases. These studies primarily evaluated asset size, number of
professionals and duration of the proceeding as the primary factors in
determining the costs of professional fees in chapter 11 cases. Taking
those previous studies into account, Prof. Lubben’s research
incorporated regression models that found the addition of other
variables, such as looking at a bankrupt firm’s assets and debts,
presence of official committees and whether there were “first-day
motions” filed in a case, to be better predictors of the costs
involved in a chapter 11 case.
Prof. Lubben’s data also
revealed that unlike in previous studies, a distressed company’s
time spent in chapter 11 had little effect on the costs of the case.
“Chapter 11 costs are largely a function of the size of the debtor
and the complexity of its case,” Prof. Lubben explained,
“the jurisdiction the case files in or the law firm that
represents the debtor does not have any independent significance in
predicting costs.”
The study examined a
total sample of 1,026 cases filed in 2004 as 945 chapter 11 cases were
pooled into a “random” sample and
size='3'>99 cases were
considered in a “big case” dataset. The average firm in the
big-case dataset had scheduled assets of $423.4 million and scheduled
liabilities of nearly $776 million, while the average firm in the random
sample had scheduled assets of $21.2 million and scheduled liabilities
of more than $37 million. Prof. Lubben found that for both samples,
professional fees totaled 4 to 4.5 percent of the bankrupt firms’
assets and liabilities, but he cautioned against reporting cost in
relation to size, since the data evidenced significant economics of
scale. Specifically, for every 1 percent increase in debtor size, fees
increase 0.38 percent.
A six-member advisory
panel comprised of a prominent judge, leading academics and bankruptcy
attorneys from around the country aided Prof. Lubben’s study.
Panel members included
size='3'>Richard Levin of Cravath, Swaine
& Moore LLP (New York), Prof.
size='3'>Robert Lawless from the University of
Illinois School of Law, Prof.
size='3'>Edward Morrison of Columbia Law
School, Nancy
Rapoport of the University of Nevada, Las
Vegas – Boyd School of Law, Dean Robert Rasmussen
from the University of Southern California Gould School
of Law and Bankruptcy Judge
size='3'>Barbara Houser from the Northern
District of Texas.
Since joining the Seton
Hall Law faculty in 2002, Prof. Lubben is one of the leading scholars
writing in the area of corporate reorganization and finance. His
article, The Direct
Costs of Corporate Reorganization: An Empirical Examination of
Professional Fees in Large Chapter 11 Cases,
was the first study of its kind by a law professor and has become a
leading analysis of this very timely issue. Prof. Lubben previously
worked as an associate at Skadden, Arps, Slate, Meagher & Flom,
where he represented major corporations in chapter 11 cases throughout
the country. Before Skadden, Arps, he clerked for the Hon. John T.
Broderick, Jr., currently the chief justice on the New Hampshire Supreme
Court. Prof. Lubben received his bachelor’s degree in history from
the
size='3'>University
size='3'>California
size='3'>Irvine
magna cum laude
from Boston University School of Law, where he was a
member of the Law Review, and his LL.M. from
w:st='on'>
size='3'>Harvard
face='Times New Roman' size='3'>Law
size='3'>School
he was a teaching fellow.
ABI’s steering
committee on this project is led by Chip Bowles
size='3'>of Greenbaum Doll & McDonald PLLC (
w:st='on'>
size='3'>Louisville
w:st='on'>
size='3'>Ky.
face='Times New Roman' size='3'>Michael Richman
size='3'>of Foley & Lardner LLP (New York), along with ABI
President-Elect John
Ames of Greenbaum Doll & McDonald PLLC
(Louisville, Ky.), ABI President
size='3'>Reginald W. Jackson of Vorys, Sater,
Seymour and Pease LLP (Columbus, Ohio), Deirdre Martini
of CIT Group, Inc. (New York),
face='Times New Roman' size='3'>Bettina Whyte
size='3'>of Bridge and Associates (New York), ABI Chairman
John Penn
size='3'>of Haynes and Boone (Fort Worth, Texas), ABI Immediate-Past
President Hon. Wesley
Steen (Houston, Texas) and ABI Executive
Director Samuel
Gerdano. The National Conference of Bankruptcy
Judges Endowment for Education designated two of its members,
Hon. Steven W.
Rhodes and Hon. Gregg Zive, to work with
ABI’s committee on this study.
The ABI practitioner
advisory panel for the study included chairman
face='Times New Roman' size='3'>Chip Bowles of
Greenbaum Doll & McDonald PLLC (
face='Times New Roman' size='3'>Louisville
size='3'>,
size='3'>Ky.
face='Times New Roman' size='3'>Albert Togut
size='3'>of Togut, Segal & Segal, LLP (New York),
face='Times New Roman' size='3'>Laura Davis Jones
size='3'>of Pachulski Stang Ziehl & Jones LLP (Wilmington,
Del.), Thomas J.
Salerno of Squire, Sanders & Dempsey, LLP
(Phoenix), James D.
Sweet of Murphy Desmond, SC (Madison,
Wis.), Joseph S.U.
Bodoff of Bodoff & Associates
(Boston), Rudy J.
Cerone of McGlinchey Stafford, PLLC (New
Orleans), Terri L.
Gardner of Poyner & Spruill LLP (Raleigh,
N.C.), Melissa Kibler
Knoll, Mesirow Financial Consulting LLC
(Chicago), Mark P.
Williams of Norman, Wood, Kendirck &
Turner (Birmingham, Ala.),
size='3'>Geoffrey L. Berman of Development
Specialists, Inc. (Los Angeles),
size='3'>Bruce H. White of Greenberg Traurig,
LLP (Dallas), Patricia
A. Redmond of Stearns, Weaver, Miller,
Weissler, Alhadeff & Sitterson, PA (Miami),
face='Times New Roman' size='3'>Richard M. Meth
size='3'>of Day Pitney LLP (Morristown, N.J.),
face='Times New Roman' size='3'>James T. Markus
size='3'>of Block, Markus & Williams LLC (Denver) and
Lisa G. Laukitis
of Kirkland & Ellis LLP (New York). Former members of
the practitioner advisory panel include James H.M.
Sprayregen of Goldman Sachs & Co.
(Chicago), Hon. Neil P. Olack
(
size='3'>Atlanta
face='Times New Roman' size='3'>Robert G. Burns
size='3'>of the Quadrangle Group (
w:st='on'>New
York).
To obtain a copy of
ABI’s Chapter 11
Professional Fee Study, please contact
Hartgen
email at
face='Times New Roman' color='#0000ff'
size='3'>jhartgen@abiworld.org. Additionally, ABI
will hold a media-only Webinar featuring Prof. Lubben along with Chip
Bowles of Greenbaum Doll & McDonald PLLC (
w:st='on'>
size='3'>Louisville
w:st='on'>
size='3'>Ky.
CIT Group, Inc. (
face='Times New Roman' size='3'>New
York
at 2 p.m. ET to discuss the results of the fee study. To participate in
the program, please contact
face='Times New Roman' size='3'>John
Hartgen
###
ABI is the largest
multi-disciplinary, nonpartisan organization dedicated to research and
education on matters related to insolvency. ABI was founded in 1982 to
provide Congress and the public with unbiased analysis of bankruptcy
issues. The ABI membership includes nearly 11,500 attorneys,
accountants, bankers, judges, professors, lenders, turnaround
specialists and other bankruptcy professionals, providing a forum for
the exchange of ideas and information. For additional information on
ABI, visit www.abiworld.org. For additional conference information,
visit
face='Times New Roman' color='#0000ff'
size='3'>http://www.abiworld.org/conferences.html
face='Times New Roman' size='3'>.