December 15, 2011
By: http://www.totalbankruptcy.com/life-after-bankruptcy/default.aspx
A law firm in South Florida recently made bankruptcy history when it sold itself to another law firm in order to save its employees and clients from potential economic hardship.
The law firm Ruden McClosky recently made headlines when it sold itself in bankruptcy court to another South Florida firm, Greenspoon Marder, for a reported cost of $7.8 million, according to a recent report in the Wall Street Journal.
The sale of businesses to other corporate bodies occurs fairly frequently in bankruptcy, and is often allowed under bankruptcy law, but law firms have historically used bankruptcy for a single purpose: closing their shops.
In fact, sources indicate that Ruden McClosky’s recent actions represent the first sale of one law firm to another in bankruptcy court in the history of bankruptcy transactions.
Of course, while the $7.8 million sale seems novel now, experts predict that the sale of law firms in bankruptcy court may soon become common as the legal world continues to struggle after the worldwide recession changed many firms’ economic models.
The Wall Street Journal reports that law firms are facing “unprecedented economic pressures,” which have been fostered by the limping economy, increased competition, and altered expectations from clients with less money to spend on legal issues.
Traditional methods of financial repair for law firms—including mergers and layoffs—no longer seem like the most suitable options for some firms, who wish to keep their clients and employees satisfied during down economic times.
Mergers often cost millions of dollars in extra legal fees to complete, and layoffs eliminate employees who could potentially help the firm recover economically when the financial world eventually recovers.
By thinking outside of the box and filing for bankruptcy, firms may be able to shed their debts while maintaining valuable services for clients who may not be able to afford the luxury of seeking new legal help.
In light of these trends, other law firms will certainly eye Ruden McClosky’s sale very closely, to see if the scheme ultimately works. If Greenspoon Marder is unable to successfully incorporate McClosky’s old business, this novel bankruptcy may be the last of its kind for a while.
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