Bankruptcy Costs Rise 9.5% a Year on Fees for Advisers, Professors Say

Bankrupt companies’ costs rose 9.5 percent a year, or four times the inflation rate, as judges approved almost 99 percent of the fees demanded by lawyers and other professionals, according to University of California, Los Angeles professors Lynn LoPucki and Joseph Doherty.

Companies including Lehman Brothers Holdings Inc. (LEHMQ), whose fees to advisers have exceeded $1.2 billion during its bankruptcy, and Enron Corp., “shop” for courts such as New York and Delaware that rarely cut fees, LoPucki said in a phone interview. About 68 percent of bankrupt companies are so-called forum shoppers that pay 29 percent more to reorganize or liquidate than debtors that stay in their home states, he said.

“Judges in general don’t do anything because if a court cut fees, cases would no longer go there,” he said.

The money being spent by lawyers would otherwise go to creditors, according to the professors’ book, “Professional Fees in Corporate Bankruptcies.” The book, released this month by Oxford University Press, covers 102 cases from 1998 to 2007.

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net

To contact the editor responsible for this story: David Rovella at drovella@bloomberg.net.

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