There have not been a lot of guaranteed paydays for the many companies and individuals lined up at the payment window of bankrupt Relativity Media. But one group of creditors is queuing up for a big cash infusion — the bankruptcy lawyers.
Total fee statements submitted to the U.S. Bankruptcy Court in New York in recent weeks have already spiraled to more than $5.8 million, with billing only completed through the end of September. That total also does not include a 20% “hold-back” on the fees that is standard in bankruptcy cases on the front end, but is likely to be paid to the firms eventually. The full charges likely to be approved by the court now total more than $7 million.
But those fees could reach much higher by the time the Chapter 11 case is over, based on fees levied in similar bankruptcy cases in the past, according to a UCLA law professor who is an expert in bankruptcy litigation. Based on Relativity’s total book assets of $560 million, fees for the bankruptcy would be expected to reach about $22 million, according to a calculator that is the brainchild of Lynn M. LoPucki, the UCLA prof.
LoPucki’s research shows that a high percentage of bankruptcy cases have shifted to Delaware and New York, where judges have been more willing to approve high fees. Though Relativity is based in Los Angeles, attorneys chose to file the Chapter 11 case in New York.
The biggest bills in the Relativity case so far have come from a pair of law firms representing Relativity and the trio of hedge funds that drove a July 30 Chapter 11 filing and the subsequent auction that led to the sale of Relativity’s TV business. Jones Day submitted invoices for more than $3 million, while its co-counsel, Sheppard Mullin Richter & Hampton, has weighed in with a total of more than $1.7 million in billings. (Those totals are minus the 20% hold-back.)
Also high on the to-be-paid list is the firm of Togut, Segal & Segal, which represents unsecured creditors in the case, who were owed some $89.9 million at the time that Relativity declared itself insolvent. The Togut firm has submitted a bill for fees and expenses of about $1 million. Those unsecured creditors would received at least $4 million in cash payments when the bankruptcy is settled, according to a reorganization plan submitted by Relativity.
The filings in bankruptcy court say that the big firms representing Relativity and its creditors — Anchorage Capital, Luxor Capital and Falcon Investment Advisors — performed an array of tasks. Primary among them, according to the Jones Day filing: litigation, disposal of assets, overseeing financing and attending court hearings. With partners in the firm billing at $1,000 an hour and many associates charging roughly half that rate, fees mounted rapidly.
Among others submitting fees to be approved by Bankruptcy Court Judge Michael Wiles is the consulting firm overseeing Relativity during the bankruptcy and reorganization, FTI Consulting, whose statement totaled $563,000. Financial advisers at the Blackstone Group — who tried to pump up an auction that ultimately fell flat, with no offers for the whole company — billed for $309,000. And Donlin Recano, administrator over a variety of proceedings including those in bankruptcy court, asked for $307,000. Those fees are reduced by the standard 20% “hold back.” When it is added in for all three advisory firms the totals come to $1.4 million.
When the advisers’ fees are added to those charged by the law firms, the total costs of the Relativity bankruptcy so far come to more than $8.4 million.