UK partners hope to avoid claims as Dewey files for bankruptcy

As Dewey & LeBoeuf this week confirmed its place in history as the largest-ever law firm collapse, Legal Week has been told that former partners in the firm's London arm are unlikely to face clawback claims stemming from US debt.

Former partners and one partner involved in the administration of the UK limited liability partnership (LLP) said initial indications suggest UK partners – who were part of a separate legal entity to the US parent – will not be individually liable for claims made by secured creditors in the US, which include Citibank, JP Morgan and Bank of America.

This comes as counterparts in the US have already started to group together to appoint legal counsel ahead of anticipated claims from creditors, and despite the fact that the UK LLP was appointed as a guarantor of the US operation's debt – including the revolving credit facility of which it drew down around $75m (£47m) and its $150m (£96m) bond offering issued in 2010.

One former partner said: "The UK LLP was a strong, profitable business – it was its role as guarantor that pushed the business into administration. The UK partners are unlikely to face clawback claims because they were not equity partners in the US LLP. There was no misconduct within the UK business and therefore the partners are ring-fenced."

The UK business, together with Paris, was officially placed into administration on Monday (28 May), around 12 hours before the US arm filed for bankruptcy protection.

In the UK, BDO business restructuring partners Mark Shaw and Shay Bannon have been appointed as joint administrators and are expected to issue proposals in eight weeks in relation to the recovery of monies owed by clients and for work-in-progress, as well as the timeframe for winding up the business.

BDO is taking legal advice from CMS Cameron McKenna, which is fielding a team led by insolvency partner Rita Lowe, as well as insurance partner Peter Maguire and litigation partner Duncan Aldred. Lowe and her team were initially instructed by Dewey's UK LLP in April.

According to one partner, the UK LLP has no secured creditors; however, its unsecured creditors, which include Prudential as landlord of the firm's Mincing Lane office and could also include  former partners, could issue claims. It is understood the firm has to ring-fence up to £600,000 under UK law to pay back such creditors.

Legal Week understands that Prudential is likely to issue a claim against the UK LLP as Dewey had annual commitments of £2.3m due to run until 2017. Hogan Lovells' real estate litigation department has already been instructed to advise longstanding client Prudential on a potential claim. Rental on the premises has been paid until 24 June and, while the insurer is trying to find new tenants, it seems unlikely it will do so within such a short timeframe.

Dewey's US bankruptcy filing, which ended months of speculation about the firm's future in the wake of dozens of partner departures and revelations of financial problems, lists assets of roughly $193.2m (£123m) against liabilities of $245.4m (£156m) as of 30 April – a deficit of more than $52m (£33m). Dewey's secured debt obligations total approximately $225m (£143m), with JP Morgan Chase – which Dewey says is owed roughly $76m (£48m) – identified as the firm's primary secured creditor.

Joff Mitchell of Zolfo Cooper is acting as chief restructuring officer, with Albert Togut of US law firm Togut Segal & Segal instructed as bankruptcy counsel.