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August 21, 2008

Article on Professional Fees in Chapter 11 Cases

Professor Stephen Lubben has a recent article in the American Bankruptcy Journal on Professional Fees in Chapter 11 cases.   Lubben, Stephen J.,Corporate Reorganization & Professional Fees. American Bankruptcy Law Journal, Vol. 82, p. 77, 2008  Available at SSRN: http://ssrn.com/abstract=1094032

From his abstract:

"Among the key findings of this study are:

- Most of the regulation of professional fees provided by the Bankruptcy Code is valuable primarily for its deterrence effects.  Retention applications are rarely denied and requested fees are rarely reduced. This, of course, does not mean that the regulatory system is broken, but rather that much of the system is not easily viewed by outsiders.

- Unlike prior studies, I find that time spent in chapter 11 seems to have very little independent effect on the costs of the case.  Factors like the size of the debtor corporation, the number of professionals retained, and whether a committee is appointed play much bigger roles.

- Professional fees in chapter 11 are subject to economies of scale.  In particular, with every 1 percent increase in the size of a debtor, professional fees only grow by less than half a percent - holding other key factors constant.

- Lost in the sound and fury about large professional expenses in large cases is the fact that almost 35 percent of the chapter 11 cases result in no payment whatsoever to the professionals. These are typically smaller cases that are often converted to chapter 7 or dismissed outright."

August 21, 2008 in Article Reviews | Permalink

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