The Chapter 11 bankruptcy case of the collapsed former Richmond financial giant quietly reached its conclusion late last month, with federal bankruptcy judge Kevin Huennekens entering a final order on Dec. 22.
The brief, four-page decree brought an end to a case that sought to recover hundreds of millions of dollars for creditors who were left hanging when LFG and its six or so smaller affiliates nose-dived into Chapter 11 in November 2008.
The complexity of unwinding the company, which had been a giant in the title insurance world and one of Richmond’s largest corporations, left it in sort of bankruptcy purgatory that in the LFG case alone required nearly 6,000 docket entries, hundreds of lawyers, accountants and other professionals racking up more than nine figures worth of fees.
The gatekeeper of the LFG case, the largest of all the related bankruptcy filings, was trustee Bruce Matson, an attorney with LeClairRyan.
Matson said he made a final distribution to creditors in the first week of December, bringing the total recovery to about 80 cents on the dollar for creditors out of nearly $600 million worth of claims. He hails it as a victory, as far as mammoth corporate bankruptcy cases go.
“It was a big success that no one expected,” Matson said. “The initial (reorganization) plan projected 26 cents on the dollar, plus some from litigation, so we were thinking it would be about 31 cents.”
That 80 cents on the dollar was after accounting for all the professional fees that piled up over the years. Matson estimates there was more than $100 million dished out to all those involved in working all sides of the case. In the first year alone, work added up to $44 million in professional fees.
“Right or wrong, it takes a while to wind these things down,” he said. “No one complains about the time when you got the kind of results we got.”
The resolution of the LFG case followed the final distributions to creditors of LandAmerica Exchange Services, the other large piece of LandAmerica. LES specialized in handling proceeds for individuals who sold real estate through 1031 exchanges. The creditors in that side of the bankruptcy were largely individuals, rather than corporations, and have since been repaid 100 percent of the $230 million they were owed.
Those 1031 exchanges were only part of what made LandAmerica’s structure complex. The company’s fall was fueled largely by having the bulk of its assets tied up then-obscure financial instruments called auction rate securities. As the country moved toward the recession, the trading market for those securities froze, leaving LandAmerica scrambling and unable to get its money out of that market.
When Matson was brought in as trustee shortly after the bankruptcy filing, he said the first order of business was to complete the sale of LFG’s main title insurance business. After closing that sale in early 2009, Matson and his team began negotiating with creditors to craft a liquidation plan. The plan was confirmed by the court in November 2009.
That’s when the heavy digging for assets began.
“During those six years we did a lot of things to sell assets and brought different litigation claims,” Matson said.
The bulk of LFG’s creditors were large banks, bond holders and other institutional holders, and the largest sources of recovered funds came from the sale of Centennial Bank, a large settlement from a lawsuit against LFG’s former executives and directors, and a $169 million tax refund. That led to 10 distributions to creditors over the life of the bankruptcy.
Somewhat ironically for a company that made its money in title insurance, the last piece that held up the conclusion of the LFG case was the sale of a gaudy mansion on the Pacific Coast. The 24,000-square-foot home in Escondido, California, became an asset of LFG in a roundabout way related to its bankruptcy and proved difficult to unload.
The house ultimately sold late last year for $5.5 million, far less than the property’s previous listing at $12.5 million and less than what Matson had thought it would go for.
“Things are worth what people want to pay for them,” he said. “I’m disappointed because I always try to work hard for my creditors.”
After spending seven years and thousands of hours on LandAmerica, Matson said he’ll miss it.
“You miss a case like this, because some cases are difficult and not rewarding because you don’t get creditors the results you’d hoped,” he said. “It was challenging work and particularly rewarding because we got a good result for creditors.”
Lucrative billable hours aside, Matson said, “You still have professional pride in getting a good result.”