Study Finds Numerous Variables Influence Total Cost of Professional Fees in Chapter 11 Cases

Study Finds Numerous Variables Influence Total Cost of Professional Fees in Chapter 11 Cases

Contact: John Hartgen
             [email protected]



December 7, 2007 Alexandria, Va. — The results of a ground-breaking study funded by the American Bankruptcy Institute Endowment Fund revealed that numerous factors, such as the presence of creditors’ committees, influenced the total professional costs of chapter 11 bankruptcy cases. While previous studies have primarily focused on a company’s asset size, number of firms involved in the case and the duration of the proceeding as the primary factors influencing the total cost of professional fees, study reporter Stephen J. Lubben, Daniel J. Moore Professor of Law at Seton Hall University School of Law, looked at numerous factors in examining more than 1,000 chapter 11 bankruptcy cases that were filed in 2004.

“The fee study represents the most comprehensive set of data of a large sample of chapter 11 cases ever compiled by an independent empirical study,” said Claude “Chip” Bowles Jr. of Greenbaum Doll & McDonald PLLC (Louisville, Ky.), the chairman of ABI’s professional fee study advisory board. “It constitutes a vital source of information about both the implications of the compensation of professionals in chapter 11 as well as the practice of chapter 11 cases in general. The high quality and vast quantity of data gathered by the fee study shows that ABI’s faith in the project and the reporter was well-placed.”

Previous studies of professional fees in chapter 11 cases over the past 20 years had examined significantly smaller sample sizes, ranging from nearly 25-75 cases. These studies primarily evaluated asset size, number of professionals and duration of the proceeding as the primary factors in determining the costs of professional fees in chapter 11 cases. Taking those previous studies into account, Prof. Lubben’s research incorporated regression models that found the addition of other variables, such as looking at a bankrupt firm’s assets and debts, presence of official committees and whether there were “first-day motions” filed in a case, to be better predictors of the costs involved in a chapter 11 case.

Prof. Lubben’s data also revealed that unlike in previous studies, a distressed company’s time spent in chapter 11 had little effect on the costs of the case. “Chapter 11 costs are largely a function of the size of the debtor and the complexity of its case,” Prof. Lubben explained, “the jurisdiction the case files in or the law firm that represents the debtor does not have any independent significance in predicting costs.”

The study examined a total sample of 1,026 cases filed in 2004 as 945 chapter 11 cases were pooled into a “random” sample and  99 cases  were considered in a “big case” dataset. The average firm in the big-case dataset had scheduled assets of $423.4 million and scheduled liabilities of nearly $776 million, while the average firm in the random sample had scheduled assets of $21.2 million and scheduled liabilities of more than $37 million. Prof. Lubben found that for both samples, professional fees totaled 4 to 4.5 percent of the bankrupt firms’ assets and liabilities, but he cautioned against reporting cost in relation to size, since the data evidenced significant economics of scale. Specifically, for every 1 percent increase in debtor size, fees increase 0.38 percent.

A six-member advisory panel comprised of a prominent judge, leading academics and bankruptcy attorneys from around the country aided Prof. Lubben’s study. Panel members included Richard Levin of Cravath, Swaine & Moore LLP (New York), Prof. Robert Lawless from the University of Illinois School of Law, Prof. Edward Morrison of Columbia Law School, Nancy Rapoport of the University of Nevada, Las Vegas – Boyd School of Law, Dean Robert Rasmussen from the University of Southern California Gould School of Law and Bankruptcy Judge Barbara Houser from the Northern District of Texas.

Since joining the Seton Hall Law faculty in 2002, Prof. Lubben is one of the leading scholars writing in the area of corporate reorganization and finance. His article, The Direct Costs of Corporate Reorganization: An Empirical Examination of Professional Fees in Large Chapter 11 Cases, was the first study of its kind by a law professor and has become a leading analysis of this very timely issue. Prof. Lubben previously worked as an associate at Skadden, Arps, Slate, Meagher & Flom, where he represented major corporations in chapter 11 cases throughout the country. Before Skadden, Arps, he clerked for the Hon. John T. Broderick, Jr., currently the chief justice on the New Hampshire Supreme Court. Prof. Lubben received his bachelor’s degree in history from the University of California, Irvine, his J.D. magna cum laude from Boston University School of Law, where he was a member of the Law Review, and his LL.M. from Harvard Law School, where he was a teaching fellow.

ABI’s steering committee on this project is led by Chip Bowles of Greenbaum Doll & McDonald PLLC (Louisville, Ky.) and Michael Richman of Foley & Lardner LLP (New York), along with ABI President-Elect John Ames of Greenbaum Doll & McDonald PLLC (Louisville, Ky.), ABI President Reginald W. Jackson of Vorys, Sater, Seymour and Pease LLP (Columbus, Ohio), Deirdre Martini of CIT Group, Inc. (New York), Bettina Whyte of Bridge and Associates (New York), ABI Chairman John Penn of Haynes and Boone (Fort Worth, Texas), ABI Immediate-Past President Hon. Wesley Steen (Houston, Texas) and ABI Executive Director Samuel Gerdano. The National Conference of Bankruptcy Judges Endowment for Education designated two of its members, Hon. Steven W. Rhodes and Hon. Gregg Zive, to work with ABI’s committee on this study.

The ABI practitioner advisory panel for the study included chairman Chip Bowles of Greenbaum Doll & McDonald PLLC (Louisville, Ky.), Albert Togut of Togut, Segal & Segal, LLP (New York), Laura Davis Jones of Pachulski Stang Ziehl & Jones LLP (Wilmington, Del.), Thomas J. Salerno of Squire, Sanders & Dempsey, LLP (Phoenix), James D. Sweet of Murphy Desmond, SC (Madison, Wis.), Joseph S.U. Bodoff of Bodoff & Associates (Boston), Rudy J. Cerone of McGlinchey Stafford, PLLC (New Orleans), Terri L. Gardner of Poyner & Spruill LLP (Raleigh, N.C.), Melissa Kibler Knoll, Mesirow Financial Consulting LLC (Chicago), Mark P. Williams of Norman, Wood, Kendirck & Turner (Birmingham, Ala.), Geoffrey L. Berman of Development Specialists, Inc. (Los Angeles), Bruce H. White of Greenberg Traurig, LLP (Dallas), Patricia A. Redmond of Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, PA (Miami), Richard M. Meth of Day Pitney LLP (Morristown, N.J.), James T. Markus of Block, Markus & Williams LLC (Denver) and Lisa G. Laukitis of Kirkland & Ellis LLP (New York). Former members of the practitioner advisory panel include James H.M. Sprayregen of Goldman Sachs & Co. (Chicago), Hon. Neil P. Olack (Atlanta) and Robert G. Burns of the Quadrangle Group (New York).

To obtain a copy of ABI’s Chapter 11 Professional Fee Study, please contact John Hartgen at 703-739-0800 or via email at [email protected]. Additionally, ABI will hold a media-only Webinar featuring Prof. Lubben along with Chip Bowles of Greenbaum Doll & McDonald PLLC (Louisville, Ky.) and Deirdre Martini of CIT Group, Inc. (New York) on Tuesday, Dec. 11, at 2 p.m. ET to discuss the results of the fee study. To participate in the program, please contact John Hartgen.


ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 11,500 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit For additional conference information, visit