Heller Ehrman filed for bankruptcy on Sunday, a result of its banks freezing assets and a key court ruling for its San Francisco landlord, according to the firm’s attorney and a memo distributed to former employees.
San Francisco Superior Court granted the landlord, 333 Bush Associates, a writ of attachment for $48 million on Dec. 19.
The writ made the landlord a secured creditor, froze a portion of assets for it, and left other unsecured creditors at a disadvantage. Last week, attorneys not involved in the case described the move as “aggressive” and predicted bankruptcy was likely to follow.
Heller’s lawyer comments, and we post the employee memo, after the jump.
Under bankruptcy, the landlord would only be entitled to a year’s rent, or about $18 million.
The memo (.pdf) said the bankruptcy was not prompted by the firm running out of money, and that “collection of accounts receivable over the past three months has been strong.” The firm’s fiduciary duties to all its creditors required a bankruptcy petition, it said.
The writ complicated negotiations, and scuttled a settlement that Heller had reached with the landlord, according to Leslie Corwin, a partner at Greenburg Traurig who is the committee’s outside counsel.
“The San Francisco landlord went and got this ridiculous attachment … which was a mistake on their part and they never should have done it. That also spooked the banks,” Corwin said.
A requirement of the settlement was an immediate cash payment to the landlord, and the banks did not approve the payment in a timely manner because of the complications caused by the writ, according to the memo.
“As a result of the levy of the landlord’s writ of attachment and internal bank procedures that (according to the banks) were triggered by that levy, the Firm was unable to make this payment before it became apparent that a Chapter 11 filing would be necessary in any event due to the bank’s intransigence during settlement negotiations,” the memo said.
Cal Law will post a full story looking into the ramifications of the bankruptcy this evening.
— Amanda Royal