Professional Fees in Corporate Bankruptcies

Bankrupt Enron paid well over a billion dollars in cash to bankruptcy lawyers, financial advisors, and other bankruptcy professionals. The managers of most bankrupt companies pay the professionals with money that would otherwise have gone to creditors, employees, shareholders, or to saving the companies. To prevent excessive payments, the bankruptcy code and rules establish an elaborate system for public reporting and court approval of professional fees. Armed with the ability to choose among courts that want or need to attract the cases, the professionals have largely taken charge of the fee-control system and rendered it toothless. The professionals ignore many of the governing rules and the courts do nothing about it. Effective methods for assessing and controlling fees do exist, but it is not in the interests of the courts or the professionals to apply them. Professional Fees in Corporate Bankruptcies: Data, Analysis, and Evaluation, by Lynn M. LoPucki and Joseph W. Doherty is based on a study of thousands of documents from the court files in over a hundred of the largest bankruptcy cases. It employs statistical analysis and documents its findings, and provides an unprecedented window on the worlds of bankruptcy professionals, professional fees, and their scientific study. Through that window, readers see both a disturbing picture of a legal system in crisis and a hopeful one with opportunities for desperately needed reform. The authors have nevertheless written it for readers with technical backgrounds in neither bankruptcy nor statistics. This book will be of interest not only to scholars studying professional fees, but also to bankruptcy professionals, judges, policymakers, and anyone interested in the functioning of law-based systems.
"This book makes an enormous contribution to the knowledge and workings of professional fees in large bankruptcy cases. LoPucki and Doherty explode several myths about fees and establish important facts about them while foregoing the usual generalizing from one or a handful of cases. Every law firm doing serious Chapter 11 work and every judge assessing fees in bankruptcy (and other) cases must read this book. Lawyers who make fee requests without accounting for the patterns revealed in this book should do so at their own peril."
--Theodore Eisenberg, Henry Allen Mark Professor of Law, Adjunct Professor of Statistical Sciences, Cornell University

"LoPucki and Doherty's in-depth study of professional fees in large corporate reorganizations is mandatory reading for all who are interested in the operation of the bankruptcy system. As fees in Lehman alone now exceed $1 billion, no one can doubt that the time has come for a serious debate. This massive and comprehensive investigation into the practices of bankruptcy professionals presents an important challenge to anyone comfortable with the status quo."
--Douglas G. Baird, University of Chicago Law School

PART I: COST ASSESSMENT; CHAPTER 1. COST MEASUREMENT; CHAPTER 2. THE EMPIRICAL STUDY; CHAPTER 3. AGGREGATE COSTS; CHAPTER 4. COST CALCULATORS; CHAPTER 5. COMPONENT COSTS: DESCRIPTION; CHAPTER 6. COMPONENT COSTS: ANALYSIS; PART II. COST CONTROL; CHAPTER 7. THE NEED FOR COST CONTROL; CHAPTER 8. THE COST OF COST CONTROL; CHAPTER 9. FEE OBJECTIONS; CHAPTER 10. FEE CUTS; CHAPTER 11. COST CONTROL FAILURE; CHAPTER 12. TOWARD EFFECTIVE COST CONTROL METHODS; APPENDICIES; A. THE SAMPLE CASES; B. VARIABLES USED; C. GLOSSARY; INDEX