A leaked copy of Heller Ehrman's dissolution plan shows a firm that has a good chance of avoiding bankruptcy - if it can collect unpaid bills and liquidate assets with the success promised on paper, reports The Recorder.
The plan puts Heller's assets at $258m (£147m) and its liabilities at $72m (£41m), three-quarters of which is money owed to the firm's banks, Bank of America and Citibank. The document predicts a 90% success rate in collecting on its $174m (£99m) in accounts receivable and work in progress.
The process comes after the chairman of the 118-year old San Francisco giant, Matthew Larrabee (pictured), announced plans to dissolve in a firmwide videoconference on 25 September.
The announcement came after 18 months after Heller, which until recently had been a top 50 US legal practice, had been battered by scores of partner departures and unsuccessful attempts to secure a rescue merger deal.
"If it goes well and they are taking the right steps to do this, they may be able to avoid bankruptcy," said Scott Bovitz, a bankruptcy lawyer with Bovitz & Spitzer, who is not involved in Heller's dissolution, but read the purported dissolution plan leaked on Thursday to The Recorder and other media outlets.
The firm did not respond to requests for comment on the document, which was apparently written after 26 September, but may not be the latest draft of the plan.
While the firm is solvent on paper, there is still a chance for a bankruptcy, Bovitz said. Three creditors who are owed a total of more than $13,475 (£7,700) can file an involuntary bankruptcy petition, and it is not clear how much of the firm's outstanding bills will be collected or whether the firm will be able to cheaply rid itself of its real estate.
Once a firm enters dissolution mode, it becomes much harder to recover the full value of bills, equipment and furniture. However, with Heller's assets listed at about $186m (£106m) more than its liabilities, the firm does not need to recover the full value of every asset.
"There is a lot of cushion," Bovitz added.
"The devil is in the details," said Stephen Snyder, the former head of Brobeck Phleger & Harrison's dissolution committee, when asked to handicap Heller's situation. The San Francisco-based Brobeck dissolved in 2003 becoming one of the largest law firm collapses US legal history.
The document notes that the four members of Heller's dissolution committee - Peter Benvenutti, Jonathan Hayden, Lynn Loacker and Paul Sugarman - are being compensated at $450 (£257) per hour for winding down the firm.
Two-thirds of Heller's assets are in accounts receivable, almost $104m (£59m), and work-in-process, nearly $71m (£40.5m). The plan says the firm expects to collect 90% of the receivables billed in the last 120 days, and expects to collect half of older work.
"That 90% is a bit optimistic," said Alan Ramos, the managing partner of Nevin Ramos & Steele, who worked as a consultant collecting receivables for Heller in the late 1990s. However, he said that it is impossible to know that the firm will not collect the full 90% without knowing more about the individual bills.
Orrick Herrington & Sutcliffe picked up 27 Heller partners on Thursday (9 October), including the three most recent former chairmen, Barry Levin, Robert Rosenfeld and Laurence Popofsky. That group also includes eight practice heads.
The dissolution document gives the committee the power to file for Chapter 7 or Chapter 11 bankruptcy on behalf of the firm. The document also names chief operating officer Brad Scott as the manager of the firm and chief financial officer Richard Holdrup as the deputy manager.
The amount owed to the banks was $45.8m (£26.1m) as of 24 September. The plan also lists dozens of unsecured creditors, the top five of which are owed more than $100,000 (£59,000). Williams Lea, a business process outsourcing company, is owed $2m (£1.14m).
The Recorder is a
For more analysis, see Editor's Blog: Heller's familiar fate.
