The Lure of Chapter 11

Creditors Should Covet IP, Not Costs

In a wry and informative Sunday Business piece in The New York Times, “Who Knew Bankruptcy Paid So Well?,” reporters Nelson D. Schwartz and Julie Creswell show just how lucrative bankruptcy fillings can be to professionals relied upon by creditors and other parties looking to recover assets.

“More than $263,000 for photocopies in four months. Over $2,100 in limousine rides by one partner in one month. And $48 just to leave a message. Explanations for these charges? Priceless.”

Restructuring experts involved in Lehman Brothers alone, report Schwartz and Creswell, have wracked up $730 million in fees, and the number could easily exceed $1 billion.

While Lehman Brothers was not known for its IP, it was certainly known for significant intangibles  — some of which may have value to creditors post restructuring. Most bankruptcy fees are legitimate. The immediacy and complexity of the issues put a huge premium on the consul and the outcome.

My question: Where are the IP strategists in the restructurings?Certainly there are a few who are recognized, but not nearly as many as there should be. Nortel’spost bankruptcy IP, for example, mostly patents, is reported to be worth anywhere from $400 million to about $1 billion. Almost every company has some IP that can be monetized.

As IP rights play a bigger part in companies’ success, they will play a more significant role in their failure. In fact, some businesses may be worth more dead for their intangibles than alive as an operating company. Creditors are starting to rely on IP advisors to help them identify, value, sell and efficiently monetize patents, trade secrets and other assets post filing.

When Brody Berman Associates was retained by Carl Icahn to manage investor relations on the Marvel Entertainmentt Chapter 11 in the late 1990s, one of our mandates was keeping the characters viable on Wall Street. I’d say that strategy succeeded. The Marvel sale to Disneywas consummated recently for a reported $4.3 billion.

Illustration credit: The New York Times

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