Correction to This Article
This article incorrectly says that Atari has filed for bankruptcy protection. It has hired a firm that specializes in turning around financially distressed companies.
Some Doors Close; Others Open
Bankruptcy Boom Has Law Firms Anticipating Rush of Business

By Anita Huslin
Washington Post Staff Writer
Wednesday, March 5, 2008

The business of bankruptcy is beginning to pick up.

In recent weeks, retailers Lillian Vernon, Sharper Image and Atari filed for protection from their creditors, becoming the latest casualties in what the International Council of Shopping Centers projects could be a year in which nearly 6,000 retail stores close.

In the first two months of 2008, 18 U.S. companies with liabilities of $12.4 billion sought bankruptcy protection -- twice as many as those who filed in the comparable period a year earlier and with a debt level four times higher, according to data from New York University's Salomon Center for the Study of Financial Institutions.

The professionals who make their livings off these transactions -- attorneys and management and financial consultants -- are gearing up.

"A year or two ago, perhaps 5 percent of firms would say they're thinking about adding bankruptcy attorneys," said Jon Lindsey, managing partner of Major, Lindsey & Africa, a New York executive placement firm specializing in lawyers. "Now it's about 85 percent. A few are far-sighted and strategic enough to say we will bring these people on, overpay them for first six months [before business picks up] . . . to have someone who knows how to pilot the lifeboat when the wave hits."

The competition has begun. More than 70 lawyers from various firms recently showed up in federal bankruptcy court in Delaware to vie for the business of Sharper Image's creditors.

Evelyn H. Biery of Fulbright and Jaworski leads one of the largest bankruptcy and insolvency practices in the country, with offices in Washington and 15 other cities worldwide. She said she plans to double the number of lawyers to handle the surge, which is expected to cover businesses of all sizes. If there is a lesson in some of the larger bankruptcies happening now, she said, it is the value of restructuring sooner rather than later.

Many of her clients show up at her door when they are at or near rock bottom, a distinction that can make the difference between a successful restructuring and the worst-case scenario: liquidation.

"Many business owners, like American consumers, will go into a state of mild to deep depression, and through inaction lose their opportunity to fix the problem," she said.

Bankruptcy in any form can be disruptive, forcing layoffs, budget cuts or worse.

While there is evidence that large business bankruptcies are on the uptick, smaller businesses are probably also in distress because of the tightening credit market and decline in retail sales. Small- to mid-cap businesses are more likely to have been capitalized by credit cards or second mortgages, said Jack Williams, a Georgia State University law professor and scholar in residence at the American Bankruptcy Institute.

In Delaware, where many companies are incorporated because of the tax advantages, law firms have been preparing for the past several years in anticipation of the bankruptcy boom, said Tony Clark, head of Skadden, Arps, Slate, Meagher & Flom's reorganization practice, which last year had revenue of more than $2 billion.

"Partners who specialize in reorganizations have been particularly hot in the last 18 months," he said. "Their practices were very slow, but people who do what I do saw the downcycle coming, and saw that bankruptcy and restructuring work will be picking up."

"It's just starting, and it's in baby steps," said Michael Sandnes, managing director of Executive Sounding Board Associates, a Washington area bankruptcy attorney and turnaround specialist involved in the reorganization of a family-owned printing business and a Northern Virginia car dealership.

"Last July, I couldn't find any appointments," he said. "Within the last 30 days I've booked five engagements, and it doesn't show any signs of letting up."

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