Expansionary Institute

Michael Zey
futurist3000@aol.com

For Lawyers, Is Boom Near in Insolvency?

December 26, 2000

By JONATHAN D. GLATER

For the last several years, lawyers have overseen an incredible spate
of public offerings, mergers and acquisitions. Now that the economy
is slowing, they are quietly preparing to play another role for
their clients   by building up their bankruptcy departments.

Both partners at law firms and legal recruiters say that demand
for lawyers with experience in bankruptcy is soaring. And while
firms indicate that they are already busy, many foresee a sharp
increase in bankruptcy filings in the near future, because
companies that are not yet in critical financial trouble   but
expect to be soon   have begun to reserve lawyers in advance.

"A huge wave is coming, and we want to make sure that we catch the
wave," said Luc A. Despins, who joined the New York office of
Milbank, Tweed, Hadley & McCloy in 1998 to build up its bankruptcy
practice.

Legal recruiters say that although statistics are hard to come by,
the demand for bankruptcy lawyers at all levels, including
partners, has been rising for several months now, and has increased
sharply since mid-October. Because experienced lawyers invariably
have jobs already, that means that law firms have been poaching
experienced bankruptcy lawyers from rivals, executive placement
specialists say.

"In the last two months, I have definitely noticed much greater
interest in immediate hiring in bankruptcy groups and an interest
in staffing up even if the departments aren't exceedingly busy
yet," said Jeff Schneider, president of Schneider Legal Search in
New York.

Mr. Schneider said that his company was looking to fill more than
50 positions at firms for bankruptcy lawyers and recently helped
several bankruptcy lawyers switch law firms.

"Nobody wants to be caught short- staffed," he said.

Firms also
want to recession-proof themselves by building up a practice that
can pay the bills when the pace of merger- and-acquisition activity
slows, said Renee Berliner Rush, a partner at Corrao, Miller, Rush
& Wiesenthal, another legal placement company in New York. "They're
really working at doing what they can to protect themselves from
the inevitable downturn," she said.

Part of the reason for the scramble for lawyers with bankruptcy
experience is scarcity: not that many lawyers have honed bankruptcy
skills in recent years. "There are not a lot of strong midlevel
associates who have that training," said Peter J. Goldfeder,
managing director at PeterSan Group, a New York legal recruiter.

Mr. Despins agreed. "The competition for associates right now is
ferocious," he said.

The total number of corporate bankruptcy filings has been falling,
to 8,211 in the three months ended Sept. 30, compared with 9,243 in
the previous three months and 8,986 in the third quarter of 1999,
according to the American Bankruptcy Institute. But lawyers say
that the statistics hide the fact that more large companies are
seeking protection from creditors.

Among the more prominent bankruptcy filings recently are those of
Lernout & Hauspie, a maker of voice recognition software; TSR
Wireless, which bills itself as the nation's sixth-largest wireless
carrier; and ICG Communications, which sells telephone and Internet
services to businesses.

"There has been a real shift in what is going on in the world,"
said Harvey R. Miller, a partner who heads the business financing
and restructuring group at Weil, Gotshal & Manges. Mr. Miller
should be an expert at recognizing the symptoms of an incipient
bankruptcy boom: he has represented such well-known filers as
Continental Airlines, Texaco and Eastern Air Lines.

Since midsummer, he said, the pace of restructuring work has
picked up notably.

"It's just a reflection of the softening economy," Mr. Miller
explained. "Financing alternatives are narrowing." His firm,
already widely recognized as a leader in the field, has hired more
than a dozen bankruptcy specialists this year.

The pickup in the pace of business does not mean simply that more
companies will be filing and will need legal help to do it.
Bankruptcy lawyers are also retained to represent creditors,
investors, employees   anyone who stands to be affected by a
company's filing.

Frequently, lawyers are brought in before a company files for
bankruptcy protection, to advise on ways either to restructure the
business to prevent a filing or to make the proceedings themselves
as smooth as possible.

The upstart technology companies that have been crashing this year
are not necessarily a gold mine for bankruptcy lawyers. Often, they
lack hard assets of substantial value in bankruptcy proceedings,
said Larry G. Engel, a partner at Brobeck, Phleger & Harrison in
San Francisco.

But the companies that did business with failed dot-coms, he said,
typically need help from bankruptcy lawyers to try to recover
anything that is owed to them.

"What we spend our time doing is the actual transaction, the
purchase of the failing company's assets," he said.

In some industries, evidence is mounting that a variety of
companies will be in need of restructuring soon, said Peter J.
Antoszyk, a partner at Brown, Rudnick, Freed & Gesmer in Boston.

In retail trade, for example, the lenders that his firm typically
represents were calling even before the weak holiday shopping
season to express concerns about borrowers' financial performance,
Mr. Antoszyk said.

Rising costs, particularly for energy, are exposing signs of
weakness in the health care industry, he added.

Lawyers said that bankruptcy reform legislation like the measure
vetoed last week by President Clinton would not have a significant
impact on corporate filings.