In the latest development in the saga of the failure of Dewey LeBoeuf, a settlement has been approved by a bankruptcy judge that would see a $19.5 million payout for the firm’s creditors. The primary parties affected by the payout would be XL Specialty Insurance, who provided insurance to the firm and former firm chairman Steven Davis who will pay the firm’s creditors.
The collapse of Dewey LeBoeuf is the largest firm failure in U.S. history. In 2007, on the metaphorical eve of the current economic crisis, large firms Dewey Ballentine and LeBoeuf, Lamb, Green & MacRae merged into mega-firm Dewey LeBoeuf. The combination of enormous debt brought into the merger by Dewey Ballentine, Davis’s strategy of increasing partner compensation, and the decline of the American economy in 2008, saw the firm fight to maintain stability, which was ultimately lost last year when the firm filed for bankruptcy.
In the last year of bankruptcy proceedings, it has been determined that the firm’s creditors are owed in the ballpark of $560 million. So far, various settlements have accounted for $91 million, and an additional $23.6 million in fees are owed to legal, financial, and restructuring advisors that have worked on the matter.
AM Law reports that on Friday, U.S. bankruptcy judge Martin Glenn approved a $19.5 million settlement of mismanagement claims that sees XL pay $19 million and Davis paying $511,145 to Dewey’s creditors. The $19 million owed by XL is a portion of the firm’s $25 million insurance plan. The other $6 million was used by Davis, ex-CFO Joel Sanders, and former executive director Stephen DiCarmine in connection with litigation blaming them for the firm’s collapse.
Davis, who is generally viewed as the figure most responsible for the collapse of the firm, was at one point under investigation by the Manhattan District Attorney’s office for his activity as the firm’s former chairman. Glenn’s ruling on the settlement absolves Davis of guilt in the bankruptcy, acknowledging that he denies wrongdoing, fulfilled his fiduciary duties, and acted in what he thought to be was the best interests of the firm and its estate. The approved settlement allows Davis to pay less than the named $511,145.
XL has ten days from the approval of the settlement to pay the firm’s creditors. Glenn was the judge that approved Dewey’s official liquidation plan, which includes $71.5 million to be paid by 400 former Dewey partners that will provide a portion of their 2011 and 2012 earnings in order to avoid being sued by creditors at a later date.