Bankruptcy and restructuring with Cleary Gottlieb

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In bankruptcy and restructuring, “jobs, businesses and legacies are on the line.” When the stakes are this high, attorneys have to be comfortable in crisis mode. The team at Cleary tell us more.

What is bankruptcy and restructuring law?

Hoori Kim, associate: Bankruptcy and restructuring law often involves a financial restructuring of an entity — be it a company, a municipality, or an individual — often when they are unable to meet their debt obligations. It’s an exciting practice in which multiple stakeholders are involved to achieve the best outcome for all parties involved. It’s also a practice under which lawyers develop various skills: everything happens under the auspices of the bankruptcy court, but the work still has a transactional element.

Tom Kessler, partner: Most people think of “bankruptcy law” as formal, court-supervised restructuring under the bankruptcy code (or foreign equivalents). That is definitely a large part of our practice, but it also includes advising on issues unique to companies or entities in financial distress or who may be close to insolvency, as well as legal issues that arise in the context of out-of-court debt restructurings.

Luke Barefoot, partner: Bankruptcy and restructuring encompasses a very broad range of skills and experiences — ranging from representing debtors and creditors in contested matters and adversary proceedings before bankruptcy courts to counseling and strategy on corporate governance in situations of distress. Bankruptcy lawyers also have to understand the underlying issues and considerations driving the issues facing the company. It provides so many opportunities to learn about different industries and to dive in to help clients in their greatest time of need.

John Veraja, associate: Bankruptcy and restructuring law answers questions regarding how parties allocate assets in situations where (for the most part) associated liabilities exceed the value of such assets.  While we take this area of law as common-place today, for long periods in history, individuals that failed to pay their debts were simply imprisoned.  Today’s bankruptcy laws are much less draconian and practicing in this area involves advising both debtors and creditors in every conceivable industry and location.

What kind of work is involved day to day?

HK: No one day is the same because this type of work is very diverse, which makes it all the more interesting. One day, I could be diving into legal research to find the answer to a complex legal question and drafting a memo for the client about our opinion. Another day, I could be fielding calls and emails to close signatures on an agreement to support a bankruptcy filing or negotiating a payment under a contract.

TK: Because our work is so dependent on the needs of our clients, it’s hard to say what a “typical” day looks like. I try to spend some time every day catching up on what is happening in the bankruptcy and restructuring world beyond my clients’ matters, which helps me stay on top of trends in our practice and our clients’ industries.

LB: Because restructuring is a hybrid practice that spans the litigation and corporate skill sets, every day is a different adventure. Literally today, I spent the morning preparing for and arguing at a hearing and then spent most of the afternoon assisting a client with negotiations and drafting on a key supply contract.

JV: Every day presents new issues and one of the most exciting parts of this practice is that you will not necessarily know what will happen the next day.  Virtually every day involves communications with clients regarding pending matters, it might involve researching a particular point of law, reviewing credit documents and agreements, negotiating with various parties in interest and/or drafting a filing for a case.  

“There’s no feeling like winning a motion in court or obtaining bankruptcy court approval for a request.”

What are the highs and lows of the practice?

HK: The highs definitely come from the achievements we are able to obtain on behalf of our clients, often involving opportunities to interact with the bankruptcy court. There’s no feeling like winning a motion in court or obtaining bankruptcy court approval for a request. Of course, obtaining a favorable settlement for our client can also be part of the high.

TK: Being near or in insolvency is a scary time for our clients, and it’s gratifying to be able to help them through a process that likely will be quite foreign to them. As for “lows,” although I have always loved the fast pace of our practice, the schedules can be very compressed. Because most bankruptcy cases have a routine schedule for the filing of motions or objections, there is always a moment on the monthly filing date when you’re watching your inbox to see what you might have to dive into for an upcoming hearing.

JV: Some of the greatest highs in this practice involve the outcomes we are able to obtain for our clients.  Both debtor and creditor clients are often surprised by the possibilities in bankruptcy – which our colleagues in other practices at the firm jokingly refer to as “bankruptcy magic.”  At a personal level, it is very satisfying as an associate to participate in negotiating financing arrangements for distressed entities or to see your research or an argument you crafted incorporated in a filing.  The challenges of this practice can be juggling multiple matters at once and being able to do so on compressed timelines.

“You have to remember that bankruptcy is often one of the hardest and most difficult times in our client’s businesses … but an empathetic ear and understanding for their position goes a long way.”

LB: There are two particular highs. First, you often are advising clients in a true crisis — where jobs, businesses, and legacies are on the line. Bringing to bear your advice and expertise on the tools available to both debtors and creditors and formulating a path forward through a difficult time is particularly gratifying. Second, because a bankruptcy case naturally lends itself to a large number of discrete, but interesting, motions or requests or relief, there are far more opportunities for even the most junior associates to get in front of the court and handle a matter. Seeing our associates shine when given these opportunities is one of the best parts of my job. On the lows, you have to remember that bankruptcy is often one of the hardest and most difficult times in our client’s businesses and brings an incredible amount of stress and pressure, but an empathetic ear and understanding for their position goes a long way.

What is a partner's typical role in matters?

LB: Particularly on large debtor-side cases, a partner is often akin to the conductor of an orchestra — relying on and coaching lawyers from different work-streams and focuses to deliver a cohesive result to the client. Partners work collaboratively with associates to formulate strategy, think big picture, and make sure everyone is coordinated and doing their best work to drive towards a shared goal.

HK: A partner typically directs associates in their various tasks and is the key client-facing member of the team. A partner will steer the broader strategy of a matter, will most often discuss and communicate the strategy with the clients, and be the final reviewer and contributor to work

TK: On a day-to-day level, they review work from associates on their matters, provide advice and guidance to clients, and engage in the “business” side of our work: marketing the firm and engaging in business development activities like pitches and other external presentations.

JV: A partner is like the captain of a team – they will typically direct associates in various tasks and will be one of the key client-facing member of the team.  A partner will set the broader strategy (often seeking input from mid-level and senior associates).  The partner will also provide final sign off and review regarding work produced by associates.

“Even as a junior associate, I have led calls with the client and negotiated substantive matters with opposing counsel.”

What do associates do?

HK: Associates are constituents of the orchestra that make the harmony come together. They take responsibility in putting together the pieces of the matter to move things forward, including drafting motions, agreements, emails, memos, and preparing for calls and hearings. The associates in the bankruptcy and restructuring group are given opportunities to take responsibility over key components of a matter. So, even as a junior associate, I have led calls with the client and negotiated substantive matters with opposing counsel.

TK: Associates are the engine of any matter. They are responsible for creating the primary work-product needed for all our matters, whether that be transactional documents for a debt restructuring, a motion in an adversary proceeding, or a plan of reorganization in a Chapter 11 proceeding. More senior associates also take a significant amount of responsibility for the overall workflow of the case, including managing the team.

JV: If the partner is the captain of the team, the associates are the players.  Associates are primarily responsible for doing the initial review of documents, completing legal research, creating first draft of filings and keeping the team organized.  Because bankruptcy and restructuring is a fairly fast-paced practice with lots of moving parts, associates are encouraged to take responsibility over particular silos of work which leads to even very junior associates, for example, having the opportunity to directly advise clients and/or negotiate substantive points with opposing counsel. 

What qualities make for good bankruptcy lawyers?

HK: I think good bankruptcy lawyers are intelligent and versatile. Because bankruptcy lawyers can also wear many hats – as litigators from time to time but also as negotiators of commercial agreements – good bankruptcy lawyers adapt seamlessly into different situations and solve a diverse range of issues.

TK: They have all the qualities of a good lawyer: curious, hard-working, with excellent strategic and legal thinking. I also think it’s critical for bankruptcy lawyers to be commercially minded. It is important to remember what your client’s ultimate business goals are and to filter your analysis through that lens. One of the best pieces of advice I received from a more senior lawyer came during a negotiation of a complex agreement. I was confident that my revisions to a provision were right on the law, despite our adversary’s strong opposition. In advising me to think like our clients, the senior lawyer encouraged me to ask to myself, “we’re right about this, but do we need to be?” I find myself coming back to that guidance time and again.

“Bankruptcy matters disproportionately require out-of-the-box thinking, driven by the practicalities of the client’s situation.”

LB: Versatility. Bankruptcy matters disproportionately require out-of-the-box thinking, driven by the practicalities of the client’s situation. At least the U.S. Bankruptcy Code provides a tremendous amount of flexibility to tailor the rights and remedies to the needs of the client’s situation. It’s a thrilling experience to harness that flexibility and tailor your advice and strategy, often pushing the boundaries of existing law.

JV: Good bankruptcy lawyers have grit, are creative, have an able to think on their feet and have the flexibility to work on multiple issues simultaneously.  Bankruptcy lawyers will take on multiple roles through the day – they might act as litigators for matters in court or as negotiators regarding commercial agreements or debt documents.  Good bankruptcy lawyers have a robust understanding of their client’s business objectives and will work to advance those objectives through their representations – which in practice, means knowing when to focus on a point and when to move along to the next issue.

What separates the Cleary Gottlieb team from its peers?

LB: Cleary does not typically sit on one side of the table. We represent parties on all sides. This gives us unique flexibility to anticipate issues that our adversaries might raise and tremendously contributes to the development of young lawyers. Rather than potentially being pigeon-holed into a routine of representing a single constituent, you can grow and develop a broad perspective that will benefit your clients and your own growth. Cleary’s global reach and client base adds another layer of both challenge and opportunity. You often have to consider the laws of multiple jurisdictions and consult with our colleagues abroad, formulating a comprehensive and often novel strategy.

HK: Cleary is also known for our excellence in managing complex cross-border matters. Our representation of Genesis, including its Singaporean subsidiary, and LATAM Airlines, the largest Latin American airline company, in their bankruptcy filing are great examples. We are seamlessly integrated with the rest of the firm as well, which helps us work better as a team.

JV: The Cleary bankruptcy team is unique in that we represent both debtors and creditors and, because of the expertise and global presence of the firm, we have the ability to work on major bankruptcy cases spanning multiple jurisdictions.

“It is impossible not to see the effects of Covid-19 on the bankruptcy practice.”

What impact did the Covid-19 pandemic have on the practice?

LB: Like many other crises, the Covid-19 pandemic has been an opportunity for lawyers and other advisors to use the tools of insolvency law to address clients’ most pressing needs. Some sectors that have been disproportionately impacted by the pandemic have and will see an increased need for our services (retail, transportation, and hospitality), but the practice will continue to evolve and stretch to accommodate the current crises of the day.

TK: It is impossible not to see the effects of Covid-19 on the bankruptcy practice. From airlines to retail, we have seen a huge uptick in clients in need of assistance as they face acute financial distress.

JV: Covid-19 changed the legal practice generally – from virtual court hearings and multi-party negotiation sessions held on Zoom and other platforms to lawyers and other professionals having greater flexibility to choose where work is done.  The pandemic also had an impact on certain sectors which have seen increased bankruptcy activity – including hotels, commercial real estate, retail and airlines.

“I think this goes for any student interested in practicing law: seek out as many opportunities as you can to hone your writing skills.”

HK: The integration of technology into the practice, including court hearings conducted through videoconferences, has been an interesting development. While I think everyone is now an expert in navigating meetings and hearings over videoconference, everyone is also very excited to be returning to having more opportunities to work together in person.

How do you see the market evolving in the next few years?

LB: If I knew the answer to this, I should give up law and become a trader! But, I think two points are clear. First, the pandemic has underscored that the bankruptcy system has and will continue to evolve to meet the unique needs of any crisis. Second, the distressed markets will continue their evolution to become more complex as participants in the market recognize the benefits and potential advantages of distressed investing.

TK: I think as Covid-based restrictions subside, companies will reevaluate how they conduct business and whether they can better leverage technology. As a result, I think we will see several industries face tough economic headwinds as their products and services become less necessary in a post-Covid marketplace.

JV: One thing you see as a bankruptcy and restructuring lawyer is that many bankruptcies and distressed situations originate with an overreliance on predictions about the future of markets.  With that caveat, I would be surprised if the bankruptcy and restructuring space is not impacted by the shifting work patterns of professionals which originated during the pandemic and the effects of higher interest rates.

What advice would you give students interested in the area?

TK: I think this goes for any student interested in practicing law: seek out as many opportunities as you can to hone your writing skills. So much of what we do is writing — whether it’s a motion that will be heard by a bankruptcy judge or a summary of the open legal issues to a partner, client, or adversary, the ability to convey information succinctly and persuasively is key.

“If you had told me when I was a law student that I’d be a bankruptcy partner, I would have scoffed.”

LB: Do what you love. You can’t possibly predict where the market will turn or how we can anticipate our client’s needs. Focusing on core skills like persuasive writing, concise drafting, and strategic thinking will be useful no matter where your career takes you. If you had told me when I was a law student that I’d be a bankruptcy partner, I would have scoffed. But, I can’t be more enthusiastic about my practice. The foundational skills built as a lawyer will carry you wherever life might take you.

JV: It’s important to know that many bankruptcy and restructuring lawyers had virtually no experience, training or specialized knowledge of bankruptcy or distressed situations prior to coming to work at a firm.  That’s not to say you do not need any skills to succeed in this practice –training to be a bankruptcy and restructuring lawyer starts with honing the skills all lawyers need: writing, communication, strategic thinking and comfort with ambiguity.  Since bankruptcy and restructuring law is a particularly commercial practice, a good understanding of current events, the economy and markets is always useful.

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