No Shortage of Bankruptcy, Litigation Work
The ongoing credit crisis and turmoil in the financial sector have fueled a major surge in securities class action litigation in 2008, according to a new study from NERA Economic Consulting. According to the group, filings hit a six-year high last year. The group projected the annual total to reach 267 - a 37% increase over 2007. NERA also notes nearly 50% of all filings in 2008 named a company in the finance sector as the primary defendant. Meanwhile, total bankruptcy filings were up 34% in the third quarter of 2008, while business filings jumped 61%, according to the American Bankruptcy Institute. “The dramatic spike in both personal and business bankruptcies reflects an economy in distress, with worried consumers over-extended and unable to supply the spending typically needed to keep the national economy going,” said ABI Executive Director Samuel J. Gerdano.
Executive search firm, A.E. Feldman, says the financial crisis is creating work for attorneys with expertise in litigation and bankruptcy. As a result, A.E. Feldman says legal jobs are likely to open up for candidates with excellent academic credentials and a demonstrable track record as top firms bet that bankruptcy and restructuring work will be one of their most promising avenues of growth. Opportunities also exist for professionals in restructuring, valuation and loan workouts. The firm says bankruptcy accountants are also in strong demand.
The credit crisis is the most significant factor contributing to the increase in litigation, continuing a trend that began in 2007, according to the NERA’s study. The group states that of the 255 cases filed as of December 14th 2008, 43% were related to the credit crisis, nearly tripling from just 40 in 2007.
Meanwhile, Navigant Consulting announced the findings of a report which show an unprecedented escalation in the number of subprime-related filings – as worsening economic conditions promise to drive the litigation volume ever higher. The firm says the number of subprime mortgage and related cases filed in federal court during just the first nine months of 2008 already exceeds by more than 50% the total for all of 2007. Moreover, Navigant says filing volume in the September 2008 quarter was the third highest on record with 131 new matters. The Navigant report also shows the subprime-related cases surpassing the 559 U.S. savings-and-loan cases of the early 1990s.
“The bottom line is that new cases continue to be filed much more rapidly than existing cases are being disposed,” said Jeff Nielsen, who leads Navigant Consulting’s Financial Services Disputes & Investigations group. Nielsen, who actively advises clients in a number of subprime-related matters, added, “We are looking at a traffic jam that will take many years to untangle.”
Nielsen also emphasized that the disastrous market conditions of late 2008 mean that new cases will continue to roll off the assembly line, citing the Chapter 11 bankruptcy filing by Lehman Brothers in September 2008 which has spawned its own cottage industry of litigation.
In fact, Lehman Brothers, at the end of December, asked a U.S. bankruptcy court for a six-month extension to file its Chapter 11 bankruptcy plan, saying the case is large and complex and it would need more time, reports Reuters. Lehman filed for bankruptcy protection back on September 15th- the largest U.S. bankruptcy filing in history, listing more than $600 billion in assets. According to Reuters, the firm has since sold many of its core assets but is still working to unwind thousands of derivatives, open trades and intercompany transactions. A court hearing on the request is set for January 14th adds Reuters, citing court documents.
The Navigant report also notes that the number of securities lawsuits and contract disputes have increased sharply, registering their highest quarterly totals to date. “What we’re seeing is a relative increase in the number of cases brought by investors and institutions,” said Nielsen, “as affected parties take stock of their losses and the recriminations follow from there.”
Amid the trend, the counter-cyclical practices of bankruptcy lawyers are thriving - despite the worst business collapse since the Great Depression, according to Financial Week. The report states firms are “buried in an avalanche of Chapter 11 filings” and those represent just a fraction of the workload as troubled companies attempt to restructure their finances. The unprecedented lack of liquidity adds an extra layer of complexity, however, which will ultimately force many clients to liquidate. For now, Financial Week argues many attorneys have more work than they can handle.
The 292,291 total U.S. bankruptcies filed during the third quarter of 2008 represented a 34% increase over the 218,909 cases filed over the same period in 2007, according to the American Bankruptcy Institute (ABI), citing data released by the Administrative Office of the U.S. Courts. Total filings for the first nine months of 2008 were up 35% to 841,496, compared to the 622,999 filings during the same period in 2007.
Additionally, ABI reports that business filings represented the sharpest increase during the third quarter of last year, with 11,504 filings – a 61% spike over the 7,167 business filings in 2007. Chapter 11 business filings also surged to 2,485 during the third quarter of 2008 - increase of 76% over the 1,410 filings during the similar period in 2007.
Financial Week also notes that these figures do not include a spate of large cases that recently hit the courts such as VeraSun, Circuit City and Tribune Co. The report also notes the market is bracing for even more fallout with possible filings from moribund General Motors and Chrysler.
While, the largest corporate filings are handled by an elite group of a dozen or so large law firms (including Weil, Gotshal & Manges who is representing Lehman, Cleary, Gottlieb, Steen & Hamilton, Cadwalader, Wickersham & Taft, Skadden, Arps, Slate, Meagher & Flom, Sullivan & Cromwell and Wachtell, Lipton, Rosen & Katz), Financial Week contends that the severity of the current recession means that bankruptcy attorneys will be busy for years. The report quotes David Heller, Global Chair of Latham & Watkins’ Finance Department in Chicago as saying, “It may be profitable, but not particularly joyous. Heller said, “We’re the field surgeons in the war zone.”
Are you working in underwriting, restructuring, loan workouts, bankruptcy accounting or bankruptcy law? If you want to grow your career or discuss your company’s talent needs, contact A.E. Feldman’s President, Mitch Feldman today.
