Professor Stephen Lubben Speaks on Sears Downfall in the Financial Times
Sears collapse shines spotlight on the cost of going bust
Eddie Lampert is not the most patient of men when it comes to the costs of clean-up. The billionaire investor who has controlled Sears Holdings, the once-mighty US retailer, since 2004 is trying to pull off a last-ditch deal to buy a portion of the company out of bankruptcy for $5bn. The deal would see several hundred stores saved and prevent a full liquidation (Mr Lampert, importantly, would also be released from liability from potential legal claims arising from his years of financial engineering at Sears, should his bid prevail).
He has, however, balked at the so-called “administrative costs” he would face if his rescue bid were accepted, according to people familiar with the situation. These costs, which include fees and expenses for hundreds of lawyers, bankers, consultants and assorted hangers-on, could run to about $100m. Weil, Gotshal & Manges, the prominent Wall Street law firm representing Sears, billed more than $5m on its own for the first 16 days of work at the outset of the bankruptcy.
Stephen Lubben, a professor at Seton Hall University School of Law, paints a nuanced picture. “If a debtor could find cheaper bankruptcy counsel, are we sure that creditor recoveries would go up, as the conventional wisdom often implies, or will recoveries go down, because the cheaper firm is too inexperienced or too small to handle the case?” he asks. “The focus must be on identifying how much Chapter 11 costs, how much value Chapter 11 generates overall and how those figures compare to the available alternatives.”
The rest of the article can be found on the The Financial Times website.
Professor Lubben was also quoted in Reuters.