Heller Ehrman’s creditors have reached a tentative settlement for $1.6 million with 62 former shareholders, most of them junior partners, according to briefs filed in bankruptcy court late Wednesday.
Creditors are targeting 180 partners altogether and have carved out policy committee members and senior management for separate negotiations.
At least 56 partners who made less than $450,000 will pay $700,000 to creditors, or an average of $12,000 each, according to court filings.
Another six partners who made more than $450,000 will pay $920,000 to creditors, or an average of $153,000 each.
Cecily Dumas, who represented a group of 52 junior partners, all of whom made less than $450,000 and all of whom settled, said she could not disclose how the payments were divided, but confirmed that some would pay more than others.
“It’s a great settlement,” Dumas said. “It establishes a precedent for everybody in this category.”
Dumas estimated another 20 partners who made under $450,000, and who she does not represent, have yet to reach an agreement with creditors.
It’s not clear from the court filings what claims would be settled, but creditors have threatened to sue former partners for $150 million under fraudulent conveyance laws.
Bennett Murphy, who represented the trustee in Brobeck’s bankruptcy and collected $25 million through settlements with former Brobeck partners, said when they were negotiating with junior partners, the “means to pay” was a factor.
“The settlement for each partner, in order to get it done, had to be in an amount that would be paid,” Murphy said. “In Brobeck, we were mindful of these financial realities. People early in their careers can only pay so much to settle their obligations.”
A hearing is scheduled for Dec. 30. Court filings indicate more settlement proposals might come this month, but that creditors won’t offer an “early settlement discount” for much longer. Creditors want at least $5 million from partners before the end of the year so they can hand that over to the firm’s former employees, who have priority claims in that amount.
At least 294 partners received payments from Heller in 2008, according to confidential creditors’ exhibits in the mediation.
Of those, 91 received between $450,000 and $1 million. Only 32 received more than $1 million. Five received more than $1.5 million. One got more than $2 million, a partner who received $2.4 million, $920,000 of which was a return of capital.