Slate's Bizbox
explainer: Answers to your questions about the news.

Who Pays Enron's Legal Bills?The bankruptcy has generated a $700 million tab.

By Brendan I. Koerner
Posted Thursday, July 15, 2004, at 7:04 PM ET

Enron's trek through Chapter 11 is drawing to a close, as the company's plan to exit bankruptcy has been approved by a federal judge. According to the Texas Attorney General's office, Enron's bankruptcy has generated over $700 million in fees for lawyers, accountants, consultants, and examiners. (The AP story quotes the outdated figure of $665 million.) Who's footing the bill for all those fees?

The money comes from what's known in legal circles as the bankruptcy estate. When a company goes bust, all of its property—which the Bankruptcy code defines as "all legal or equitable interests of the debtor"—is put under the jurisdiction of a bankruptcy court. Lawyers and other professionals working on the proceedings must then submit their bills to the judge presiding over the case, who in turn decides whether to approve the requests. The money is then taken from the estate and used to pay the requester. In the Enron case, 80 percent of the fees were paid immediately after receiving the judge's approval, and the balance will be remitted once the case officially ends.

As is typically the case in corporate bankruptcies, Enron has managed to generate some money for the estate through the sale of assets—remember the guy who bought the giant "E" that used to stand outside Enron's headquarters?—and the liquidation of energy contracts. The company also sold its energy trading business to UBS Warburg for no cash upfront, but rather a promise to share the profits once the operation was relaunched. It never was.

Creditors such as Citigroup and the state of Texas have complained that the court has been too lenient in its vetting of the legal fees, the upshot being that there will be far less money left over to settle Enron's debts. Of the thousands of lawyers who've taken part in the bankruptcy proceedings, many bill hourly rates of $600 to $700 or even higher. According to one anecdote that ran in Legal Times, the law firm of Weil, Gotshal & Manges hired a paralegal from a temp service for $28 per hour. But they billed Enron $105 per hour for her services, for a grand total of nearly $47,000.

To allay creditors' fears that the bills were getting out of control, Judge Arthur Gonzalez appointed a fee committee to scrutinize each and every request for reimbursement. The committee, headed by a retired bankruptcy judge, sifted through thousands upon thousands of fee applications and disqualified some obvious rip-offs, like lawyers who tried to charge their bar tabs to Enron. But the committee was only able to lop off a small fraction of the fees.

Next question?

Explainer thanks Tom Kelly of the Texas Attorney General's Office.

Print This ArticlePRINTDiscuss this in The FrayDISCUSSEmail to a FriendE-MAIL
Share on FacebookPost to MySpace!Share with MixxDigg ThisShare with RedditShare with del.icio.usShare with FurlShare with Ma.gnolia.comShare with SphereShare with Stumble Upon
Brendan I. Koerner is a contributing editor at Wired and a columnist for Gizmodo. His first book, Now the Hell Will Start, is out now.
Join the Fray: our reader discussion forum
What did you think of this article?
POST A MESSAGE | READ MESSAGES
Washington Post
The Washington Post
OPINIONS
Let the Oil Deals Flow
Raad Alkadiri | Congress should not interfere in the oil industry's contract negotiations with the Iraqi government.