News accounts of the hearing on the first-day motions in the Dewey & LeBoeuf bankruptcy reported that the secured lenders whose cash collateral the liquidating debtor-in-possess must use to wind down its affairs asked for a lien on avoidance actions (popularly known as “clawbacks” although I would subtract points on a bankruptcy final exam from any student who used that term) as additional collateral. They didn’t get it, at least not yet. Clawbacks typically come in two flavors: recovery of either preferential transfers under Bankruptcy Code § 547 or fraudulent conveyances under § 548. The objects of these avoidance actions would, I suspect, be the (overly) highly-paid partners whose guaranteed compensation packages proved the firm’s ruin. The report here of the retention by a number of former D&L partners of attorney Mark Zauderer confirms my suspicion.
All reports suggest that D&L’s unsecured creditors will be out of the money; not a crumb will be left after secured bank and bond debt is paid. Thus, for unsecured creditors to collect even a dime will require vigorous pursuit of avoidance actions. I wouldn’t mind becoming the Irving Picard (of Bernie Madoff bankruptcy fame) of D&L ($554 million and counting in fees so far per the NYT).
A good place to start might be “rainmaker Ralph Ferrara” who, according to a Global Legal Post article here got “$16 million to offset the fully vested pension he lost in the move [from Debevoise & Plimpton], and recreating his Debevoise office down to the paint color.” Say what? How does one need compensation for a “fully vested” pension? If fully vested means fully vested, Ferrara could have suffered no loss in his switch to D&L, and his $16 million pop should be low-hanging fruit in an avoidance action. And even if Ferrara did suffer a $16 million hit when he left Debevoise & Plimpton, one could be forgiven for suspecting that D&L didn’t get “reasonably equivalent value” for paying him that much simply for jumping on board. I’m sure Ferrara had a great book of business and all but $16 million plus guaranteed compensation!? Gotta wonder.
Scott Pryor
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