Bankruptcy Judge: Dewey Can Use Lenders’ Cash Collateral

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Written By admin at Thursday, May 31st, 2012

Bankrupt New York law firm Dewey & LeBoeuf LLP got the green light Wednesday from the court to use some cash that remains in the firm’s accounts to pay for critical functions as it winds down its affairs.

That means the firm (aka “The Debtor”) will be able to write checks to cover payroll, preserve firm records, protect employee entitlements to accrued benefits and preserve client documents, in accordance with a budget submitted to the court. The firm now has approximately $ 13.4 million in cash on hand, according to an amended declaration by Joff Mitchell, the chief restructuring officer for the firm.

According to the interim order by U.S. bankruptcy Judge Martin Glenn:

. . . granting the interim relief requested is necessary to avoid immediate and irreparable harm to the Debtor and its estate pending the Final Hearing, and otherwise is fair and reasonable and in the best interest of the Debtor, its estate, and its creditors and equity holders, and is essential for the continued operation of the Debtor’s business. . .

But lenders, who have a claim on the money as a result of amendments to loan agreements in the weeks leading up to Dewey’s bankruptcy filing, will have to wait until a June 13 hearing to see what they can get in exchange for fronting the firm the so-called cash collateral.

Because the firm essentially has no other assets besides the cash, Dewey’s lenders had asked Judge Glenn to grant them a lien on proceeds from future litigation, such as clawbacks of partner pay. That is not happening, at least not now:

For purposes of the Interim Order, the Debtor has agreed not to assert any “equities of the case” claims under section 552(b) of the Bankruptcy Code against any of the Prepetition Agents, Revolver Lenders or Noteholders with respect to proceeds, products, offspring or profits of any of the Prepetition Collateral.

One reason Judge Glenn didn’t want to allow such claims, at least on an interim basis:  no creditors committee has yet been formed, so the other parties that Dewey owes money to have not yet had a chance to weigh in on the matter.

That shouldn’t take too long, according to lawyers for Dewey and others. A number of unsecured creditors met with U.S. trustees on Wednesday at a Manhattan hotel. Once the committee is selected, they will negotiate on behalf of unsecured creditors seeking payment from Dewey & LeBoeuf.

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