The well-publicized collapse of New York law firm Dewey & LeBoeuf likely is coming to its closing chapters. The firm has now lost about 160 of its nearly 320 partners since January 2012 to other firms, with 81 of those partners having announced their departures in May. And for many of the firm’s associates and staff, this will be their last week of employment.
Yesterday, two members of Dewey’s office of the chairman—the four-person leadership group—spoke to the Wall Street Journal about how the collapse has come about, and what they expect to happen next.
Dewey 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. If successful, this 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.
Bienenstock, who soon will be taking five partners with him from the firm’s bankruptcy group to Proskauer Rose, told the Journal that there were several factors that led to Dewey’s demise:
“For one thing, the projection of revenues for last year fell $30 million short in December. So instead of earning $820 million we were closer to $790 million for 2011. So the net income was $250 million instead of $280 million.
“The second factor: The firm had a $100 million revolver from a group of lenders that was due to mature in April of 2012. In order to maximize our ability to roll the revolver over for 2012, the firm was advised not to bring the draw back up to $100 million. At the end of December, the revolver had been paid down to about $30 million, but we were advised to draw it back up only to $75 million, not all the way to $100 million.
“So between the $30 million revenue shortfall and the $25 million of unavailable credit, we were looking at a working capital contraction of $55 million. This is why people weren’t paid.”
Landgraf, who also is expected to announce a move to another firm, told the Journal that in face of these troubles, Dewey’s management team has worked hard to keep the firm afloat.
"As far as we can tell, we've left no stone unturned,” Landgraf said. “We tried to save the firm first, and then to provide a smooth transition."
Bienenstock said the initial goal was to keep the firm afloat as a stand-alone entity, but when that looked unlikely, the goal shifted to transitioning large blocks of departments to other firms in an effort to save staff jobs and protect clients.
Despite this piece-by-piece dismantling of Dewey, Bienenstock adamantly told the Journal that the leadership team still has no plans to dissolve the firm.
“The intent is to optimize the outcome for all the constituencies,” he said. “Right now that’s done without the use of the court. Whether it continues that way, we have to say we’re not sure, but so far it’s worked.”
“Right now, we have no plan to file a Chapter 11 bankruptcy,” Bienenstock continued. “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.”
Bienenstock and Landgraf added that after they leave Dewey, firm general counsel Janis Meyer and mergers & acquisitions department head Stephen Horvath will oversee any further unwinding.
Click here to read the whole interview with the Wall Street Journal.
For more from InsideCounsel on Dewey’s downfall, read:
Exodus of Dewey attorneys in full effect
Dewey warns employees that firm could shut down
Dewey’s potential merger with SNR Denton falls apart
Dewey encourages partners to jump ship
N.Y. prosecutors probe Dewey & LeBoeuf, firm cuts ties with executive
Dewey & LeBoeuf plans to sublease executive floor
Dewey & LeBoeuf hires bankruptcy counsel
12 Dewey & LeBoeuf partners defect to Willkie Farr
Dewey & LeBoeuf overhauls management team amid more defections
