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January 14, 2009 4:56 PM

Cleary Gottlieb Bulks Up with Two Big Bankruptcy Filings

Posted by Brian Baxter

Cleary Gottlieb Steen & Hamilton picked up two major bankruptcy assignments on Wednesday when the firm was formally retained by Toronto-based Nortel Networks and Cayman Islands-based Apex Silver Mines Limited.

Leading the firm's engagement on both matters is New York-based bankruptcy and restructuring partner James Bromley. Bromley was previously part of a team from the firm that advised the SEC and Federal Reserve Bank of New York during the collapse of Lehman Brothers.

Bromley was reported in December to be leading a Cleary team advising Nortel in its restructuring efforts. Once Canada's largest company by market value, Nortel is one of the largest manufacturers of telecommunications equipment in North America. But the company has been hit hard since the tech bubble burst in 2000.

Bloomberg reports that Nortel has had to fight increased competition from San Jose-based Cisco Systems and Sunnyvale, Calif.-based Juniper Networks. At the same time, current Nortel customers such as New York-based Verizon Communications have slashed expenditures.

Accusations of fraud and mismanagement by senior Nortel executives haven't helped either. The Am Law Daily reported in June about the arrest of former Nortel CEO Frank Dunn and former CFO Douglas Beatty by Royal Canadian Mounted Police on charges related to allegations of accounting fraud at the company. (McCarthy T├ętrault litigation partner David Porter is representing Dunn in the matter.)

With Nortel owing more than $3.6 billion in bonds, the company filed for Chapter 11 protection from creditors in U.S. bankruptcy court in Delaware on Wednesday. Assisting Bromley on the Nortel filing is Cleary financial restructuring and insolvency partner Lisa Schweitzer and Delaware firm Morris, Nichols, Arsht & Tunnell, which is serving as local counsel.

Derrick Tay, head of the insolvency and restructuring practice at Ogilvy Renault, is serving as Canadian counsel to Nortel on its Ontario Superior Court filing, whereby Nortel is seeking protection from creditors under Canada's Companies' Creditors Arrangement Act. (In a bit of trivia about our neighbors to the north, former two-term Canadian prime minister Brian Mulroney is a senior partner in Ogilvy's Montreal office.)

If Bromley is worried about shuttling back and forth to Toronto on Nortel matters in the dead of winter, he's got a perfect complementary client (weather-wise, that is) in Apex Silver Mines, which calls George Town on the island of Grand Cayman in the Caribbean its corporate headquarters.

As its name suggests, Apex runs silver mining operations, specifically in Latin America, the largest being the San Cristobal mine in southern Bolivia. The mine is estimated to hold an estimated 450 million pounds of silver, 8 billion pounds of zinc, and 3 billion pounds of lead, making it a lucrative asset for a company like Apex going through a reorganization because of unexpected increased mining costs.

Apex sold a 35 percent stake in San Cristobal to Japanese general trading company Sumitomo in 2006 for $224 million in cash and proceeds from future metal production. The company now plans to sell its remaining 65 percent stake in San Cristobal to pay off creditors.

According to court documents filed by Apex in U.S. bankruptcy court in Manhattan, Cleary has billed the company for $3,150,873.75 in fees and $111,321.56 in expenses since being hired in June 2008. The firm was also paid a $500,000 retainer, some of which has been put towards fees and expenses.

Bromley and restructuring and insolvency partner Sean O'Neal are the lead partners advising Apex. Bankruptcy records show that Cleary partners are billing between $725 and $980 per hour, counsel between $645 and $800, senior attorneys between $630 and $740, associates between $375 and $670, international lawyers and law clerks at $325 per hour, summer associates at $320, and paralegals between $230 and $320 per hour.

Cleary has also petitioned the bankruptcy court to hire Denver firm Davis Graham & Stubbs as special counsel and leading offshore firm Walkers as Cayman counsel. (Incidentally, Walkers announced it was opening an office in Singapore on Wednesday as well.)

Davis Graham managing partner Christopher Richardson and corporate M&A partner Brian Boonstra are leading the team from the firm, which has a history of doing litigation, general corporate, and SEC-related work for Apex. The company's general counsel, Deborah Friedman, is an inactive partner at the firm.

Bankruptcy records show that Davis Graham partners will bill between $260 and $500 per hour, associates between $180 and $325, and paralegals between $125 and $175. The firm has so far billed Apex for $549,170.88, including portions of a $75,000 retainer.

The Walkers bankruptcy team advising on Cayman law is being led by Guy Locke, the firm's senior partner for insolvency and corporate recovery. Bankruptcy records show that Walkers partners bill between $750 and $850 per hour and associates at an hourly rate between $350 and $675. The firm has been paid a $50,000 retainer by Apex.

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This shows that incompetence is not limited to financial companies. It is also present at mining companies, law firms, and among investors, like myself, who bought shares in this company.

Hats off to to the media, who can still dig up a story, and research it; and especially to Asian companies, who know how to have the patience to profit from such incompetence.

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