Top bankruptcy law firms have a rare encounter: A challenger – Bloomberg Law | Vette Leader

Welcome back to Big Law Business column written by me in the changing legal marketplace, Roy Strom. Today we look at what it takes to crack the lucrative high-end bankruptcy practice. Register to get this column in your inbox on Thursday mornings.

Big law firms are strengthening their bankruptcy practices as the likelihood of a recession rises.

The top 100 firms hired nearly 120 restructuring attorneys in the second quarter, more than any other period in the past two years, as large bankruptcies hit historic lows, data from law firm and attorney analytics firm Firm Prospects shows.

Paul Hastings made up a large part of the hiring as he brought over 40 attorneys from Stroock & Stroock & Lavan.

Some of these firms hire restructuring lawyers to do the creditor work as insurance against a collapsing economy.

But at least one, Sidley Austin, is taking on the toughest job in Big Law’s bankruptcy business. It hires to represent large companies in bankruptcy – a business that now goes to only a select few competitors.

Just three firms — Kirkland & Ellis, Weil Gotshal & Manges, and Skadden, Arps, Slate, Meagher & Flom — have controlled the high end of restructuring practice for more than three decades.

According to a database compiled by UCLA and law professor Lynn LoPucki, at least one of these firms has been the largest Chapter 11 claimant for 26 of the past 31 years.

Kirkland’s practice has been at its peak in the past decade, peaking in 2020 when the firm advised on 23 of the top 56 bankruptcies, the database shows.

With so few firms controlling the highest end of the practice, is there hope for new competitors to reach the top of Big Law’s bankruptcy practice?

“It’s taking a long time, but it’s doable,” said Sharon Garb, chief executive of recruitment firm Major Lindsey & Africa. “The first step is to find a credible group leader. It’s a risk, but the rest can follow after that.”

Sidley Austin makes this push.

The firm last week hired Kirkland & Ellis partner Stephen Hessler, who worked on several large cases and oversaw Kirkland’s work for bankrupt telecoms company Frontier Communications in 2020. The case garnered more than $30 million in charges. He will serve as Sidley’s Global Restructuring Chair.

Hessler and Sidley chairman Yvette Ostolaza said the firm has more hires waiting to be announced as it strategizes to become a focal point for large, distressed companies. Sidley already has a restructuring practice consisting of approximately 50 attorneys.

“It’s a big goal for all of us at Sidley to be among the first choices for corporate representation,” Hessler said in an interview. “And given our client base, not just on the private equity side but also in the public company environment, we believe we’re incredibly well positioned to win our share of this work.”

Indeed, a large private equity practice is critical to cracking the practice on the debtor side, Garb said.

So are large teams of litigators, tax attorneys, and strong relationships with board members, often forged through executive compensation practices or defense of shareholder activism — a practice Sidley spearheaded during the first half of the year.

“They have made it clear that they want to build on this and if they can get some of that work it could be shared,” Garb said. “It depends on how loyal those sponsor clients are to Sidley. That will be the question.”

Other firms have employed Sidley’s strategy of attracting a partner from a leading restructuring practice in hopes of replicating that firm’s success.

Cravath Swaine & Moore did a rare side hustle in 2007 by bringing on board former Skadden partner Richard Levin, who had helped draft the 1978 Federal Bankruptcy Code.

Latham & Watkins hired Skaddens Jan Baker in 2009, who said at the time it could take 10 years to make Latham a perennial in the form of Weil or Kirkland.

Baker retired in 2017, and a year later the firm brought in former O’Melveny & Myers partner George Davis (who started at Weil) to co-head the bankruptcy practice. In 2019, Latham co-headed LoPucki’s database with four debtor representatives alongside Weil.

Paul Weiss hired former Kirkland partner Paul Basta in 2018 to represent Revlon Inc. in its Chapter 11 bankruptcy filed last month.

A court filing from that case provides clues as to why the hard-to-crack practice remains so alluring to managing partners. Basta lists his hourly billing rate as $2,025, one of the highest in Big Law. The law firm had earned nearly $8.5 million in fees in just over a month of working on the case.

Jon Truster, a New York-based law firm recruiter at Macrae Legal, said more and more firms are calling about the availability of bankruptcy partners.

How successful can they be considering it takes years to break the top of the bankruptcy market?

“It’s hard to say if cases will spread any more than they have in the last 10 years,” Truster said. It’s also unclear if “the trend for Kirkland and Weil to act as primary debt counsel is changing.”

worth your time

About Sidley: Sidley was also in the news this week after a group of Texas Republican lawmakers threatened to fine the company for promising to pay for out-of-state abortions. The White House has criticized the effort as the kind of “extreme proposals” President Joe Biden has warned against after the Supreme Court’s Roe v. Meghan Tribe and Courtney Rozen reported that Wade had fallen.

On Twitter and Elon Musk: Twitter is suing Musk for his efforts to scupper a deal to buy the company, with attorneys for Wachtell Lipton Rosen & Katz saying the Delaware Chancery Court case could be resolved in just four days, with hopes of starting Sept. 19 to be able to, reported Jef Feeley for Bloomberg. I have previously reported that the case could result in tens of millions in legal fees for the several major law firms involved.

About Big Law and Colorado: Big law firms are flocking to Denver as technology and life sciences companies there receive record amounts of venture capital funding, reports Sam Skolnik. Firms such as Crowell & Moring and Wilson Sonsini have recently entered the field.

That’s it for this week! Thanks for reading and please send me your opinions, criticism and tips.

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