An audit report of professional fees in WorldCom Inc.’s bankruptcy case was filed in federal court last week, shedding light on the high cost of high stakes bankruptcy proceedings.
WorldCom, which won a federal judge’s approval for its reorganization plan earlier this month, has piled up fees at a rate of $10 million a month, according to The Washington Post.
WorldCom is paying its own bankruptcy law firm as much as $3 million a month, but it is also required to pay for its creditors' lawyers and financial advisers. WorldCom has paid $150 million in fees during the past year. More than $40 million of that paid for the company’s investigation into the massive accounting scandal that led to the biggest bankruptcy case on record.
With so much money at stake, U.S. Bankruptcy Judge Arthur J. Gonzalez took the unusual step of naming a fee audit committee to oversee the bills submitted to the court. In last week’s report—the first of three—the audit committee recommended that several law firms and financial advisers reduce their bills by hundreds of thousands of dollars.
In one example, Akin Gump Strauss Hauer & Feld LLP, the law firm for WorldCom's official creditors committee, submitted a bill of $3,294,531.58, including fees and expenses, for a four-month period between July 29 and Nov. 30, 2002. The audit committee recommended a total reduction of $323,000. Gonzalez will rule on the recommendations.
In another instance the firm charged WorldCom $19,160 for time spent preparing its bill. The audit committee recommended cutting the bill to $4,790. The law firm disputed the fee auditor’s recommendation in a lengthy filing in bankruptcy court.
Last week, Akin Gump reached a settlement with the fee audit committee to reduce its fees and expenses by a total of $95,000.
As high as those fees are, large companies are focused on getting through bankruptcy quickly and are not likely to argue over multimillion-dollar fees, said John Toothman, president of the Devil's Advocate, a fee-auditing firm based in Alexandria, Virginia. "It is not going to spend a lot looking at the charges," he said. "They are looking at much larger numbers."