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Lubben on Corporate Bankruptcy Costs

posted by Bob Lawless

Professor Stephen Lubben of Seton Hall University (and a former Credit Slips guest blogger) has recently published the findings from his massive study of professional fees in corporate reorganizations. The paper appears under the very descriptive title of "Corporate Reorganization & Professional Fees" in volume 82 of the American Bankruptcy Law Journal at pp. 77-139. This paper will be a standard reference on corporate bankruptcy costs.

Lubben reports on a dataset of 1,026 cases that filed chapter 11 in 2005 in thirty-three separate judicial districts. Among Lubben's key findings:

  • Courts rarely deny applications to retain professionals and rarely reduce professional fees
  • Time in bankruptcy is not related to the level of professional fees
  • Professional fees in chapter 11 are subject to economies of scale (i.e., larger bankruptcies result in a lower percentage of value being devoted to professional fees)
  • Thirty-five percent of chapter 11 cases result in no payments to professionals whatsoever.

You'll have to read the study for the details. Professionals who work in chapter 11s and who like to get paid will want to do so. It contains a lot information about the expectations for the costs of an average chapter 11. In a "big case subsample," Professor Lubben provides separate data for the biggest corporate reorganizations.

I'm not quite sure how one goes about getting a copy of the study. The American Bankruptcy Institute, which provided the funding for Professor Lubben's study, was selling a CD-ROM with the study's contents. Full disclosure notice: I served on the advisory committee for Professor Lubben's study.

UPDATE (4/21): Professor Lubben wrote me to say a copy of the paper is available on SSRN here.


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