When Dewey & LeBoeuf filed the largest law firm bankruptcy in US history, it owed an estimated $315 million, with potential additional claims of a further $245 million.
A judge’s approval of a settlement in the bankruptcy of law firm Dewey & LeBoeuf could provide an interesting example of how the clawback provisions the SEC is still debating could be applied to publicly traded companies.
The Wall Street Journal reported Tuesday that federal bankruptcy judge Martin Glenn approved a $71.5 million settlement between former partners of Dewey & LeBoeuf and the firm’s estate, which allowed more than 400 partners to contribute to a fund to provide relief for creditors, bondholders and lenders in exchange for immunity from prosecution in future lawsuits. When Dewey & LeBoeuf filed the largest law firm bankruptcy in US history, it owed an estimated $315 million, with potential additional claims of a further $245 million.
The Journal reported that judge Glenn decided the clawback of partner compensation from 2011 and 2012 to create the fund was the best way to satisfy Dewey’s creditors. The alternative would be a flurry of individual lawsuits that could take years to resolve.
In his decision the judge wrote: ‘The settlement will provide for quicker distributions to creditors, at lower risk, and with significantly less administrative expenses.’
Perhaps the SEC could consider a similar system for publicly traded companies. In cases where major restatements of earnings occur, companies would set a percentage of compensation to be clawed back (in some cases it might be all compensation during the affected period).
SEC mediators, not judges, would then determine whether the agreement was in the best interest of all parties – and adjust it if necessary. If companies strongly oppose the SEC’s recommendation, the fairness of the clawback could then be decided by the courts. Many companies are trying to tackle this issue on their own, putting in place their own clawback policies ahead of SEC rules. Hopefully, a solution that is fair for all will emerge as companies try a range of different approaches.
