How to Get a Bigger Seat at the Table
Problem: My customer just filed a Chapter 11 bankruptcy. Is there any way my single claim can get extra attention, but in a way that is economic? I don’t want to be lost in the crowd. And I really don’t want to throw good money after bad.
Solution: Yes, you might consider teaming up with other trade creditors in a joint representation effort.
Story: In a recent bankruptcy filed in Denver, our law firm agreed to jointly represent a group of oilfield services clients with unpaid invoice claims. First, all the clients allowed us to file mineral liens against the properties owned by the debtor in North Dakota. The joint representation spread the legal fees between the claims on a pro-rata basis. In that way, the smallest claimant would have equal representation with the largest claimant. The combined claim represented one of the largest groups in the bankruptcy, ensuring that we would have a voice in the decisions made in settling the bankruptcy.
As you can see from the table, the larger creditors saved some legal fees, and the smaller creditors got much more attention with the size of the combined claim. The group elected to proceed with litigation while continuing to talk settlement.
Analysis: During the past couple of energy industry downturns, we have learned that the best way to make an impact and have the best chance to receive a reasonable recovery is to be both aggressive and actively negotiating with the bankruptcy attorneys, but economics have always been a problem. The cost of experienced legal representation may be too much for smaller trade creditors, who may end up lost in the crowd. Joint legal representation creates a fee-sharing arrangement to generate a successful and economic way to navigate through complex bankruptcy litigation. And smaller creditors generally have the most to gain.
Conclusion: In this bankruptcy, our group of clients spent $120,000 in legal fees and recovered just over 51% of their claims. This was 20X the total fees. Our clients, large and small, were pleased with the outcome, especially considering that unsecured claims in the same bankruptcy recovered less than two cents on the dollar.
Our lookback analysis at the conclusion of this bankruptcy gave insight for future efforts. No one really wants to be forced to resort to litigation in a bankruptcy; however, we learned that quick action to file perfect liens was the critical first step. Bringing the claims as a large group was probably the most important strategic tactic. The opposing lawyers did attempt to divide and conquer on several occasions, but the insistence of our group to stay together and fight resulted in the eventual success. Since Doré Rothberg McKay represents more OFS companies nationwide than any law firm, we are involved in every major O&G bankruptcy and would like the opportunity to represent you.
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