Jul 022013
 

On June 11th 2013, the Justice Department officials announced that starting November 1st, new attorney fee guidelines for Chapter 11 bankruptcy cases will take effect. The new guidelines seek to reflect “the evolution in law-firm billing practices and technology that have [recently] occurred.” The main focus of these guidelines is to check whether lawyers, some of whom charge over $1,000 per hour, are taking advantage of companies going through financial crises to charge higher rates. “The cornerstone of the guidelines is a requirement that attorneys demonstrate they are not charging bankruptcy estates a premium above fees charged to clients outside bankruptcy,” said Clifford J. White III, the leader of the Justice Department office who monitors all bankruptcy cases for potential abuse.

The role of bankruptcy monitors includes scrutinizing attorneys’ fees which must be publicly disclosed and approved by the court. There’s not enough disclosure today, according to White. The new guidelines, which apply in bankruptcy cases in which the debtor has at least $50 million in assets and at least $50 million in liabilities, will govern when additional disclosures about legal fees may be requested from the attorneys. These new guidelines also request attorneys to submit budgets estimating the cost of work they intend to perform for a case.

While monitoring legal fees for large bankruptcy cases seems to be the right move considering the amount of fees companies are being charged, unsurprisingly, bankruptcy attorneys are not so excited about these guidelines! Attorneys have argued that submitting budgets could put them “at a competitive disadvantage, revealing their bankruptcy game plan to their adversaries.” In response, the Justice Department conceded that budgets may be made public after the work has been performed.

As of now, the new guidelines only apply to attorneys, but it is expected that fee guidelines for non-legal professionals who are typically employed in large Chapter 11 cases will also take effect soon.