International firms are struggling to find the right lawyers to handle a restructuring wave. Anthony Lin reports

When economic crisis struck Asia in the late 1990s and early 2000s, international law firms with newly-crippled clients in the region flew in their top restructuring specialists from the US and Europe.

This time around, though, those lawyers are much in demand at home, leaving Asian offices somewhat strapped for bankruptcy talent.

"There will be a resource crunch," says Matthew Bersani, Asia managing partner for Shearman & Sterling. His firm worked on some of the region's largest restructurings of the past decade – including those of Chinese conglomerate Guangdong Enterprises and Singapore-based Asia Pulp & Paper – largely by relying on big-name bankruptcy partners from New York.

"In the current situation, that [strategy] may not work out as well," Bersani acknowledges.

With the economy swooning, restructuring assignments are on the rise in Asia as much as elsewhere. But while adding bankruptcy lawyers would be a no-brainer for a firm in New York or London right now, Asia presents firms with a more complicated choice. Some firms are pushing to expand their local restructuring capability; others say the less specialised nature of the practice in the region presents an ideal opportunity to redeploy otherwise idle transactional lawyers.

Among those firms making restructuring a priority in the region is Skadden Arps Slate Meagher & Flom. Hong Kong office head Alan Schiffman said the firm is looking to recruit a specialist, either a lateral hire or a lawyer reassigned from another Skadden office.

"We understand the value of having someone who is on the ground here all the time," says Schiffman. "It is better than someone flying in."

The value of being on the ground, as some firms see it, lies in the peculiarities of the restructuring process in Asia. There is no court-supervised corporate rehabilitation process akin to a US Chapter 11. A bankruptcy filing in Asia generally means a liquidation – so there is little need for experts in, say, debtor-in-possession financing.

"You have to pretty much forget everything you know about Chapter 11," says Mark Fairbairn, a Hong Kong-qualified restructuring partner recently recruited to O'Melveny & Myers from White & Case. Instead, he explains, the process is mostly about negotiation and dealing with the often idiosyncratic structures of Asian businesses, a large proportion of which are family-controlled.

Several firms say the more consensual nature of the process in Asia obviates the need to hire dedicated restructuring lawyers. Instead, firms can reassign corporate lawyers to restructuring work.

Anthony Root, head of Milbank Tweed Hadley & McCloy's Hong Kong office, says restructuring is booming for the firm right now, but that corporate finance and M&A lawyers are handling the work.

"A lot of it has to do with fixing deals that you did," Root says. "There are a lot of lawyers like me who understand the debt instruments involved. In some ways, I have an advantage over a dedicated restructuring lawyer because I see the whole picture."

Shearman's Bersani agrees. "We are already doing that," he says; "renegotiating covenants and convertible notes."

Both Bersani and Root say the handling of high-level workout negotiations for the largest, most complex entities remains a more specialised skill. That is usually their cue to bring in the big guns from overseas.

This week, Root notes, Dennis Dunne, the New York-based head of Milbank's bankruptcy practice, will make a short visit to Hong Kong.

"We are fortunate to have him out here," says Root, who adds that Dunne will be meeting with a number of the firm's private equity and hedge fund clients in the region to discuss workout strategies.

But Dunne, who is the lead lawyer for the creditors' committee in the Chapter 11 bankruptcy of Lehman Brothers, will not be sticking around. "I do not think it is realistic to take your top restructuring people and put them in Asia," says Root, noting the generally greater volume, larger scale and higher value of major bankruptcy work in the US.

Bersani also raises the question of how Asia-focused restructuring lawyers would have fared during the boom times just past. "If that is all they do, what would they have been doing for the last 10 years?" he asks. Yet some firms say the next 10 years will be quite different from the last decade for Asian restructuring work. White & Case expects that the process will be more contentious than in the past. In Hong Kong, the firm recently entered into an alliance with Laracy Gall, a local firm specialising in bankruptcy litigation.

"The types of players in the market now were not around in '97," says John Hartley, the head of the bank finance and restructuring practice in White & Case's Hong Kong office. He is referring to the private equity and hedge funds that are far more heavily invested in Asian assets than they were a decade ago. In the US, such funds have injected a new level of litigiousness over distressed companies and assets. Hartley sees no reason why Asia will be different.