After failing to secure a government bailout or locate a buyer, Lehman Brothers Holdings Inc. filed for Chapter 11bankruptcy on Sept. 15, 2008. The $2 billion price tag for winding down the massive holdings of the New York-based investment banking firm has eclipsed the $757 million in bankruptcy costs incurred by the previous record holder Enron.
While some critics feel that the fees being charged in the Lehman bankruptcy case are unusually high, a professor at the University of Illinois’ College of Law pointed out that the typical percentage paid in fees for Chapter 11 bankruptcy cases is approximately two to four percent of the assets of the company filing for bankruptcy. In the case of Lehman Brothers, the $2 billion in fees is far less than that percentage when compared to the company’s $639 billion in assets. A bankruptcy attorney also noted that highly chaotic bankruptcies are typically more expensive than less complex cases.
According to the 2011 court approved liquidation plan, creditors hoping to recover some of the money that they lost as a result of their dealings with Lehman Brothers are currently scheduled to receive a payment equaling approximately 18 cents for every dollar that they are actually owed by the investment bank. The repayment percentage could rise as the company continues to sell some of its holdings and the value of its remaining assets appreciates over time.
Businesses that are facing financial hardships and contemplating filing for Chapter 11 bankruptcy protection may need professional help to navigate the sometimes confusing legal system. Attorneys working in the area of bankruptcy law may be able to educate their clients about their rights under the law and help them to develop a plan to reorganize their finances.
Source: Bloomberg, “Lehman Recovery Seen as Justifying $2 Billion Bankruptcy“, Erik Larson, September 10, 2013by