Judge Changes Mind and Okays Dewey to Tap Their Collateral

The judge overseeing Dewey & LeBoeuf’s epic bankruptcy — the all-time largest law firm collapse — has changed his mind over yesterday’s decision to bar Dewey from tapping collateral held by J.P. Morgan in order to fund their wind down. He had been dissatisfied that the lenders’ were demanding a lien on the proceeds of future litigation in exchange for access to the money, but today he realized the necessity of Dewey having access to the money. Dewey estimates that it needs $8.6 million to fund three weeks of operation, and now that it has access to its collateral, it has $13.4 million in hand. Said U.S. Bankruptcy Judge Martin Glen in an interim order:

“Granting the interim relief requests is necessary to avoid immediate and irreparable harm to the Debtor [Dewey] and its estate pending the Final Hearing, and otherwise is fair and reasonable and in the best interest of the Debtor, its estate, and its creditors and equity holders, and is essential for the continue operation of the Debtor’s business.”

The judge had bean wary of granting such permission because no creditors committee had yet been formed, which is necessary for the parties whom Dewey owes money to give voice on the issue. Nevertheless, such a committee for unsecured creditors swiftly met at noon yesterday, and what several of the 55 attendees said they had never seen such a committee called to order so quickly — within 48 hours after Dewey filed for bankruptcy.

The committee of unsecured debtors will include the staffing agency Diamond Personnel, who Dewey owes $740,519, and possibly Winthrop Resources Corporation, who Dewey owes $35.5 million — though Dewey listed Winthrop as a secured creditor.

Dewey has only two partners on board in their American office, Stephen Horvath III and general counsel Janis Meyer, who are staying on for several months liquidate Dewey.