Involuntary Bankruptcy

[Anonymous]

Bank loans to law firms are generally personally guaranteed by partners/shareholders. When banks control firm checkbooks, banks will use accounts
receivable collected to reduce loan balances. This is in the best interests of the banks and partner/shareholders, but not other law firm employees. You are entitled to two months notice before your paychecks can be stopped. And you entitled to your accrued vacation pay. If paychecks/vacation checks are not paid, you should force an involuntary bankruptcy. The bankruptcy trustee will assure that you are properly paid. The banks most likely will not.

[observer]

It's not so simple as that. Bankruptcy has some pluses, but also many minuses. These include added admin expense, lengthy delays, and many others. Bankruptcy trustees only indirectly look out for you; their first concern is for their fees and the fees of their lawyers and accountants.

A main concern is that a bankruptcy filing would very likely reduce the collections realized on the firm's AR.

I think it is true (I've never seen any of the loan docs) that the partners have some degree of personal liability to the banks. It is not the old-fashioned type where each partner was entirely liable for the entire loan, however. It is an exposure related to the partner's ownership share in the LLP.

A key question is whether AR's will be sufficient to pay off the banks and then the employees. If not, then trying to shift bank obligations toward the shareholders individually would make sense. If AR's do suffice, however, bankruptcy would likely harm employees' chances of being made whole.

I've said this elsewhere, but will say it again: I am all for clear, reasoned discussion of these issues, and am very open to better ideas. What I wouldn't like to see, though, is emotional reactions leading to shooting ourselves in the foot on the economics. I do think that has already happened with that NKA class action damaging getting 'waiting time' penalties.

IMHO.

[gingersnap]

Hi -- I have refrained from posting on ATL or any other blogs until now. I am not sure whether or not forcing bankruptcy is the right thing to do but I do have a question about whether or not the mistake in the original complaint filed by our colleagues could be amended to correct the error on the waiting time penalty money issues?

Thank you so much for creating this site and also for acknowledging the most excellent blog by HellerDrone. He or she has been so helpful during this stressful time. I hope you are all doing as well as can be expected.

Oh -- and I love the Spell Check!

Best Wishes

[anon]

The loans in question were not personally guaranteed by the shareholders of Heller Ehrman. That was actually an issue for the banks insomuch as they did not have experience in this sort of situation without personal guarantees. hence the rather draconian behavior of the banks.

[observer]

Well, the 333 Bush landlord and the banks have acted so as to force the firm's hand, and a voluntary bankruptcy occurred on Dec. 29.

Many details over at Heller Drone. Claim deadline of April 27.

In all the current circumstances, this looks like it will probably be good for us ex-employees. Payout on claims will be quite a while coming, though.