Dewey & LeBoeuf, the U.S. law firm that has suffered a fatal partner exodus since the beginning of the year, filed for Chapter 11 bankruptcy protection in New York on Monday, completing one of the biggest collapses of a law firm by any measure.
In its final days, the firm was hit by an investigation into its former chairman by the Manhattan district attorney and lawsuits filed by axed staff and contractors.
"The firm was confronted with liquidity constraints that led to the precipitous resignation of over 160 of the firm's 300 partners by May 11," said the filing in the bankruptcy court by Jonathan Mitchell, a managing director at Zolfo Cooper, which is responsible for the firm's restructuring. "Following unsuccessful negotiations with other law firms to structure a transaction that would have maintained the core value of the firm for the benefit of creditors, employees and clients, and as a result of continuing defaults ... the debtor decided it would be in the best interests ... to wind down its business."
Dewey listed liabilities of between $100-million (U.S.) and $500-million on the filing, and Mr. Mitchell's statement refers to $225-million of secured credit. An increasingly frenetic partner exodus breached loan covenants just as a $100-million line of revolving credit became due, on which the firm owed more than $75-million. Part of a $125-million private placement was also due to mature next year.
Credit to law firms is usually predicated on having a minimum number of partners – the most senior category of lawyers at a firm, who traditionally share in its equity rather than take a salary.
But at least a large part of Dewey's troubles are reported by former partners to have begun by promising multimillion-dollar guarantees over several years to attract star recruits to the partnership after a merger that completed just as the financial markets began to plummet.
The firm was created in 2007 through the merger of Dewey Ballantine – a top-drawer mergers and acquisitions adviser whose New York credentials were burnished with the name of the former state governor, Thomas Dewey – and LeBoeuf Lamb Greene & MacRae, known for its insurance and energy work.
The Manhattan district attorney's investigation into Steven Davis, who helped negotiate the merger with Dewey when he headed LeBoeuf Lamb, is continuing and its scope unclear. Mr.Davis denies all wrongdoing.
The firm's London and Paris offices operated under a separate legal entity known as UK LLP, which is not covered by the Chapter 11 filing. UK LLP also filed for administration on Monday, BDO, the administrators, confirmed in a statement.
"D&L UK has generated significant profits, but it could not escape the serious issues which have affected the Dewey & LeBoeuf global business. We have worked with D&L UK's management, the legal regulators and other stakeholders over the last few weeks to ensure that client interests and files are protected, at the same time as maximizing returns to creditors," said Mark Shaw, the BDO partner leading the administration.