“If you are a bankruptcy lawyer right now, you are a fool not to be sharpening your teeth.” Whether you’re a bankruptcy associate or not, now might be the time to consider what’s on offer in the practice that booms when others bust.
As the Covid-19 pandemic withers the global economy and businesses pay the price, the legal market’s counter-cyclical reply is to put more faith in bankruptcy, restructuring and reorganization (BRR). Firms are reassigning juniors by the hundred and revving up their search for lateral talent in preparation for an unprecedented influx of work. “The same thing happened when I was an associate at Vinson & Elkins in 2009/10,” says Ali Kelly, who split her 11 years as a BRR associate between V&E and Kirkland & Ellis. She’s now deputy general counsel at a New York real estate investment company. “We pulled lawyers from every department,” she recalls.“Firms will repurpose at the junior level: first to third year, those folks are fungible. But the nice thing is that whatever your expertise – litigation, finance, M&A – there’s work for everyone under this gigantic umbrella, just in a Chapter 11 setting.”
Taylor Miller, a managing director at legal recruitment firm Whistler Partners, thinks this market shift should give anyone considering a move pause for thought. “Having started my career after the previous recession, I've found that bankruptcy attorneys tend to have generally similar goals and challenges as their colleagues in other practice areas,” he says. “The difference now is that the incredible demand for their skillsets allows them to address their goals and challenges with an exciting degree of leverage, in absolute terms and relative to non-bankruptcy attorneys.”
But associates in other practices should also take note. “Young lawyers tend to overlook BRR or even dismiss it when setting their career goals,” says Whistler recruiter Mat Martin, “when in fact it offers valuable and early experience in the boardroom and courtroom.” Jude Gorman can testify to this. He’s currently COO at a public relations firm, but when he left law school he headed for Latham & Watkins. “I was standing up in court arguing fees as a third-year – slightly terrifying, but pretty cool – and also drafting operative amendments to credit agreements as a very junior associate.”He knew from the get go that he wanted to work closely on the business side: “My sense was that bankruptcy put you there before being a capital markets lawyer or a litigator. I’d narrowed it down to BRR or M&A, and it seemed to me that you got where you were going in the restructuring world faster than you did in the M&A world. I think that turned out to be true."
Bankruptcy is about to take off
Bankruptcy attorneys are in demand, but to be clear, this doesn’t mean every company that isn’t Amazon is about to go bankrupt. Adam Silverman, managing partner of Chicago commercial insolvency and bankruptcy boutique, Adelman & Gettleman, explains that “filing for a Chapter 11 is traditionally the last resort for our clients. It’s incredibly expensive. We spend a lot of time trying to find alternatives to it.”
“I had long thought there was going to be a retail apocalypse, and this is likely to be the tipping point...”
To that end, Ali Kelly suggests that, in the approaching Covid fallout, “practically every single business loan will need some sort of modification.” Restructurings, reorganisations and other repairs to the creditor-debtor relationship will all be key in preventing bankruptcies, but as the crisis threatens to rumble on and on, Adam Silverman sees a worsening situation for struggling businesses. “I envision that banks are going to re-evaluate loans because they are thinking about the second wave of infection. They’ll want to get rid of the weak links in their loan portfolios.”And in terms of which industries will likely be hit, Silverman says“retail establishments are easy targets to name. It is not difficult to speculate that once forbearance agreements and principal deferrals expire, banks will become more aggressive.”
Bankruptcies will follow, according to Robert Dakis, formerly a bankruptcy partner at a New York firm, now GC at Churchill Real Estate. “I had long thought there was going to be a retail apocalypse, and this is likely to be the tipping point,”he says. “But retail bankruptcies will also mean leases not being paid; leases not being paid mean mortgages not being paid, which means trusts not getting their income. That will mean credit default swaps being picked up. Then you’re at a 2008 level of financial crisis again.”
In short, this is one of those moments you might look back on – the Netflix stock you were offered in college; someone betting their house that the guy from The Apprentice would never be president – where you needed to hear the right advice. “If you are a bankruptcy lawyer right now,”says Dakis, “you are a fool not to be sharpening your teeth, calling everyone you’ve ever represented. Everyone is being affected by Covid-19; it’s only a question of who is going to capitalize on that.”
Fast & Furious
“Associates often join the best-ranked firm out of law school they get an offer from, putting a Cravath salary first, and figuring out their ideal practice second,” says Sean Burke, founder of Whistler Partners. “A move to BRR could be your chance for more meaningful work.” Bankruptcy is often regarded as a niche practice – but, Sean points out, its difference is its advantage. “Although general practice has gone the way of the dinosaur, bankruptcy is the last place at a top law firm where you can be what lawyers used to be: the client’s go-to guy.” Burke says bankruptcy attorneys will handle corporate, litigation, employment and IP work, and get to work closely with the business side. “That’s actually a key parallel to startup practice that attracts associates, what we call ‘outside GC experience’. You hold clients’ hands through everything.”
Associates must somehow develop knowledge in each of those areas, all the while knowing when to call for expert help. BRR lawyers navigate court proceedings, while also deal-making at breakneck speed, selling off assets, and striking agreements between creditors and debtors. A former BRR lawyer himself, Whistler’s Mat Martin "loves working with BRR attorneys because there is no artifice. Practicing BRR law is like being a first-responder to business conflagrations. There are no games: BRR attorneys have to work quickly and efficiently to triage and resolve problems in the hope of saving the business. This straightforward approach leads to mutual respect between attorneys and an incredibly high level of candor, mentorship, and collegiality within the BRR bar.”
Bankruptcy juniors straddle transactional and litigious work, and Adam Silverman explains how experience as a corporate or finance associate will set you up neatly to transfer. “To thrive you have to be very adept at commercial transactions and fundamentally sound in commercial law and finance. Those are skills that are portable from where you are now.” Ali Kelly, meanwhile, emphasizes that “finance lawyers play a huge role in a Chapter 11, in critical elements of the case: the DIP (Debtor in Possession) loan when you go in, and exit loan when you go out. Many people working for larger firms are listed as finance lawyers, but they mainly do DIP loans. Firms will now be looking for lawyers in their finance departments to do this sort of work.”
“Bankruptcy litigation is no fuss, no bullshit. It’s very streamlined. Everything is expedited.”
Meanwhile, the litigation aspect is its very own beast, says Kelly: “Bankruptcy litigation is no fuss, no bullshit. It’s very streamlined. Everything is expedited. A lot of regular litigation is fighting for the sake of fighting – you can spend three years in discovery. You don’t see that in bankruptcy. There’s no time for it: you’re dealing with a melting ice cube.”
Adam Silverman has been juggling those ice cubes his whole career at one firm, sticking with the debtor shop he joined out of law school. For him, bankruptcy work is elevated by the close relationship it necessitates between client and counsel. “As a litigation associate you might spend two years going through boxes doing document review before you see a client. Things move a lot faster in bankruptcy. The curve which takes associates to important meetings is a lot more accelerated.”
There’s a creative hue to the work too. “Debtor-side you can sell solutions to banks that aren’t cookie-cutter,”says Silverman.“For example rewriting debt into performing notes and hope notes.”Creditor-side lawyers meanwhile, benefit from “taking the wheel and steering things,”says Robert Dakis. “The debtors have to react, and you keep coming at them with strategies. The secured creditors drive the bus; they’re going to get their collateral one way or another.”
Unfortunately, “in Chapter 11 cases, there are definitely going to be 14-15 hour days,”says Silverman. It’s a product of the urgency of the situation. Lender-side work is usually more predictable, “but there will be a ton of work on the creditor side now,”says Kelly. “Superstar senior associates will be able to parlay their work volume for promotion.”
Getting ahead
To progress up the ladder in BRR, it’s crucial to know how debtor and lender practices do business. “Debtor practices are an anomaly,” explains Amdie Mengistu, senior recruiting consultant at Whistler. “They get no repeat business from those companies going through liquidation, so you won’t build an individual book of business.” Adam Silverman sheds some light on how it works at his firm: “Adelman Gettleman gets a significant amount of its work by referrals from larger firms with a conflict of interest. We maintain those referral relationships by doing a good job, solving problems when they can be solved, and returning the client to the care of the originating firm.”
“If you want to make partner, you have to leave a big firm.”
“On the creditor side you’ll have repeat work with banks and financial institutions,”says Robert Dakis, “but at the big shops, the clients are too big to be portable. You might know four guys on Deutsche Bank’s distressed desk, but if you leave your firm, you’re not taking Deutsche’s business with you. At a smaller, leaner firm, you can start building a book of business.”
Dakis’ advice is this: “If you want to make partner, you have to leave a big firm.” A prestigious name on your resume will help – Dakis started out at White & Case – but making partner is mathematically unlikely. “Start somewhere you are going to get the broadest experience and learn your focus, then move smaller and leaner if you can; get hands-on experience for your second move; then your third move should be to the place where you will make partner. At a small or mid-market firm you are able to take the ball and run with it in cases. You do it yourself until you can’t. Bigger firms are more siloed: they have bankruptcy litigators, bankruptcy employment guys, transactional guys and so on.”
One factor guiding your moves, all our interviewees agreed, should be the prospect of mentorship. “If you’re chasing the money, that’s not going to be productive,”recommends Adam Silverman. “As a young attorney you need to associate yourself with someone who is well respected. There’s a lot to learn in this field and you can’t learn it all overnight. It takes time. Find the right people to attach yourself to for good mentorship.”
It’s a reminder that there’s so much more to a job search than who’s paying the most. Whistler’s Francis Kelly is seeing a lot of this right now: “I’ve talked to many more junior BRR associates over the past 12 weeks, and one consistent theme continues to prevail – they want to have holistic conversations about building their careers. This extends beyond helping them make informed career decisions and goes to the heart of how we’ll match them with the right group based on what matters to them, like an authentic diversity and inclusion effort among firm leadership, or being seen as more than just a source of billable hours.”
Going in-house
But what will experienced bankruptcy lawyers do when the economy eventually rebounds, and bankruptcy work fades? “Moving in-house is a strong option as a seasoned attorney. You’ll have an amazing mix of relevant experience, more choice, and less risk of being slotted into an overly specific role at a business, a fate litigators often suffer,” says Sean Burke, himself a former litigation associate. And Amdie Mengistu has good news from the front lines: “More and more roles for bankruptcy lawyers are popping up in-house. The past few years saw an increase in alternative lenders and investment funds entering the ad-hoc space. That fact, plus Covid Madness, means we are seeing more and more workout teams forming in-house, and distressed desks and various funds requiring good restructuring lawyers.”
“During a Chapter 11 you are effectively functioning as outside general counsel.”
“Going in-house as a lender-side attorney typically means going to banks or financial institutions,”explains Jude Gorman, adding that debtor-side options include private equity shops and operational companies. Gorman’s own associate years at Latham & Watkins track the start of the 2008 financial crisis, the subsequent increase in reorganization work, and finally the tail end of this trend. “I didn’t really take advantage of my marketability as much as I could have in 2010/11,”he reflects,“But, at the time, I didn’t want to do the job anywhere else but at Latham.” Jude eventually left private practice to join Reorg, a research company focusing on distressed securities. There, he took on a combination of legal and business roles, including GC and executive leadership during the company’s growth and eventual sale. “When our sale process started, what I knew about the transaction process made me extremely valuable,” he explains.“I may not have known exactly how to execute a PE buyout, but I knew how things were going to play out from my experience at Latham and that was an incredible value add on the business side of things.”
Unfortunately though, many businesses just can’t get their head around recruiting a bankruptcy lawyer. “It was admittedly an obstacle I had to overcome. They think ‘Why do I want a bankruptcy lawyer running my business?’ So change the way they see it,” says Gorman.Ali Kelly’s rebuttal is that “during a Chapter 11 you are effectively functioning as outside general counsel. You see any contract there is: you have a hand in vendor agreements, supplier contracts, customer contracts, and leases. Whether it’s in Chapter 11 or not, it doesn’t matter, you work to get the best terms you can. And all the time you’re weighing the need to bring in experts to advise you. For me that made it a seamless transition to in-house.”
Bankruptcy attorneys are not the business equivalent of divorce attorneys
As a bankruptcy lawyer, you might need to prove that you are better qualified than attorneys in other practices for the broad role of a general counsel. “The key is knowing how to sell yourself,”says Ali Kelly. “Some friends of mine working in-house helped me revamp my resume to make it look far more like I was a corporate attorney. We pulled out almost all references to Chapter 11. The important thing was that I had worked on multi-million dollar M&A contracts.” Jude Gorman was the same. “My resume hardly had the word bankruptcy on it,” he tells us. Another tip to be in-house material: “Make sure you are doing finance and transactional work beyond regular 363 sales. You should try some more conventional sales, of a company division for example, to ensure you know the process.”
“I think business solutions is the right way to label most modern bankruptcy lawyers.”
Robert Dakis wants a new understanding of bankruptcy lawyers’ jobs altogether. “You shouldn’t sell yourself as a bankruptcy lawyer. I’m a business solutions guy, a fixer. Your job is to fix broken companies just enough and then sell them off. You’re the guy who, when everything else is on fire, can balance 50 tasks and get them done.”At Dakis’ previous firm, Morrison Cohen, the team that works on bankruptcies now calls itself ‘Business Solutions.’ “Most of what we did was out-of-court workouts,” he says. “I think business solutions is the right way to label most modern bankruptcy lawyers.”
It feels fitting to finish on the theme of misunderstanding. Bankruptcy is surrounded by it. In this piece, we’ve heard more than enough to set the record straight. It may not have the easy, flashy appeal of many practices out there, but it’s always going to exist, the yin to the fashionable yang. If you’re practicing bankruptcy now, you have a unique opportunity to leverage your importance. If you’re attracted to the practice, it could be an excellent time to find your calling, and reject a dissatisfying drift through BigLaw.
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