Senator Requests Probe of New Bankruptcy Fee Rules

Starting Nov. 1, attorneys representing large corporate debtors in Chapter 11 will be subject to additional disclosures and rules when it comes time to submit their legal fees for bankruptcy-court approval. The Justice Department’s bankruptcy watchdogs at the U.S. Trustee Program are behind the fee guidelines, which officials hope will combat the perception that lawyers take advantage of a company’s crisis to charge expensive fees.

In a letter dated Monday, Mr. Grassley asked Congress’s investigative arm, the U.S. Government Accountability Office, to review whether the new fee guidelines will “prevent excessive fees in the future and, if not whether legislation is needed to address this problem.”

“It is imperative, in a court of equity like the bankruptcy court, that Congress monitor whether large corporate cases are ‘cash cows’ for certain professionals at the expense of creditors and debtors alike, thereby subverting Congressional intent,” Mr. Grassley wrote in the letter.

Attorney fees are one of many hot-button issues in bankruptcy, and Mr. Grassley’s letter referenced another: venue. Bankruptcy laws afford companies great flexibility to choose where they seek protection, and critics say lawyers push companies to file in a venue where $1,000 (or higher) hourly fees are the norm. Mr. Grassley asked the GAO to review “whether certain jurisdictions maintain lax standards that encourage excessive fees.”

A spokeswoman for the U.S. Trustee Program, the guidelines’ proponent, declined to comment Monday afternoon.

Write to Jacqueline Palank at [email protected]. Follow her on Twitter at @PalankJ.