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The Determinants of Professional Fees in Large Bankruptcy Reorganization Cases


Lynn M. LoPucki


University of California, Los Angeles (UCLA) - School of Law

Joseph W. Doherty


University of California, Los Angeles - School of Law


Journal of Empirical Legal Studies, Vol. 1, January 2004

Abstract:     
This article presents the findings of an empirical study of professional fee and expense awards by United States Bankruptcy Courts in 48 large public company bankruptcy cases concluded from 1998 through the first half of 2002. Data was gathered from fee applications and orders in the courts files. Using that data together with case and company data from the Bankruptcy Research Database, the authors constructed regression models of the determinants of (1) the amounts of professional fees and expenses awarded by case and (2) the amounts of debtor-in-possession bankruptcy attorneys fees awarded by case. Two determinants dominate both models: the value of the reorganizing firm's assets and the length of time the case remains pending. Two additional factors contribute to determining the amount of professional fees and expenses, but not debtor in possession bankruptcy attorneys fees: the number of professional firms working in the bankruptcy case and whether the case was in the Delaware bankruptcy court.

The ratio of fees and expenses to firm size was subject to a scale effect. As the size of the case increased, the ratio of fees to expenses declined. For the 48 cases studied, total fees and expenses were 1.4% of assets reported on the bankruptcy petition. The average ratio of fees and expenses to assets was 2.2%, but removal of a single outlier reduced it to 1.9%. Controlling for firm size, case duration, and the number of professional firms working, fees were 32% higher in Delaware cases. But controlling only for firm size, the significance of this finding disappeared. Fee cuts were generally small - exceeding 4% of the amounts applied for in only 11% of the cases. The mean fee cut varied significantly by court. Delaware cuts averaged 0.7%, New York 4.5%, and Other Courts 2.3%. The differences in fee cuts among courts was significant, but fees were not significantly lower in cases with larger fee cuts.

Based on a comparison of the data gathered in this study with the data gathered by Weiss, inflation-adjusted professional fees and expenses awarded in large, public company reorganizations have fallen by about 57% since the 1980s. Controlling only for firm size, the difference is statistically significant. The decline in fees appears to be associated with the decline in case duration that occurred during the period.

Number of Pages in PDF File: 32

JEL Classification: G33, G44, K22, K29, K41

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Date posted: June 26, 2003  

Suggested Citation

LoPucki, Lynn M. and Doherty, Joseph W., The Determinants of Professional Fees in Large Bankruptcy Reorganization Cases. Journal of Empirical Legal Studies, Vol. 1, January 2004. Available at SSRN: http://ssrn.com/abstract=419280 or http://dx.doi.org/10.2139/ssrn.419280

Contact Information

Lynn M. LoPucki (Contact Author)
University of California, Los Angeles (UCLA) - School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
(310) 794-5722 (Phone)
Joseph W. Doherty
University of California, Los Angeles - School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
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