CHICAGO Bankruptcy experts' fees are no bargain for Kmart
One Kmart bankruptcy lawyer billed $210 for reading a newspaper article.
KNIGHT RIDDER NEWSPAPERS
Eleven months into its complicated bankruptcy saga, one thing is certain: Kmart's bills are no BlueLight special.
Legions of lawyers, accountants, financial advisers and real-estate experts are working for one of the world's best-known discounters -- and they've billed their client for more than $51 million, according to documents filed in U.S. Bankruptcy Court in Chicago.
Kmart's highest-paid lawyers and advisers make as much as $700 an hour and charge for their time in six-minute increments. So when one of them spent no more than 18 minutes reviewing a "press article," Kmart got a bill for $210.
Other lawyers charge Kmart a minimum of six minutes every time they leave or listen to a voice-mail -- including calls to people such as the federal prosecutor and FBI agent investigating the company's financial collapse. The cost for some of those voice-mails: $55.50 each.
Kmart also has been billed for sedan services that shuttle lawyers, advisers and creditors to and from various airports; hotel stays in such places as the Waldorf-Astoria in Manhattan, the Peninsula Chicago and Birmingham, Mich.'s Townsend Hotel, and little things such as snacks for an airplane ride and $3.78 diet colas from a hotel minibar.
And it's all starting to add up.
More than $51M so far
From January -- when Kmart filed the largest retail bankruptcy in history -- through August, its professional services bills totaled more than $51 million. Kmart not only pays for its own lawyers and advisers but the expenses of its shareholders' and creditors' committees, and their lawyers and advisers.
Kmart's fees and expenses, experts say, are in line with other major bankruptcies. A judge in the Enron Corp. case, for example, recently approved more than $55 million in fees and expenses during the first four months of its bankruptcy.
Kmart's chairman and chief executive, Jim Adamson, said companies go into bankruptcy because they've run out of money -- then must spend tens of millions of dollars to get out. That's why, Adamson said, he is pushing for Kmart to reorganize as soon as possible. And when he is on the clock with Kmart's lawyers, Adamson said, he tells them to "be fast."
Some experts say that if Kmart's lawyers and advisers can save the company, the cost of the bankruptcy will be money well spent.
"The bottom line is, the professionals have to be paid if they're going to save this system," said Joe Whall, a turnaround expert in Auburn Hills, Mich. "There's no hope for anybody if they don't get paid."
But critics say Kmart's bankruptcy bills are another sign of excess at the century-old retailer that gave consumers the BlueLight special.
Last year, at the same time Kmart's finances were collapsing, the company's executives were using its four jets so much -- including for personal travel -- that they bought two more. They drove luxury leased cars and were paid salaries that allowed some to live in million-dollar homes. Then, weeks and months before Kmart filed for Chapter 11 in January, Chief Executive Chuck Conaway and 24 other executives received $28 million in loans that they wouldn't have to repay, even if they were fired.
Arun Jain, a marketing professor at the University at Buffalo, N.Y., said he is saddened to see how, "like vultures," outsiders are feeding on Kmart as it struggles to survive.
"Who is watching the cash box?" Jain asked. "Where is the concern for the shareholders and the employees? Does anyone really care? Instead of throwing a lifesaver, it seems that everyone is on a gravy train."
Sees no discrepancies
Ira Bodenstein, the U.S. trustee in Chicago, scrutinizes the bills in Kmart's bankruptcy as part of his agency's responsibilities and said they are not out of line with other large cases.
A fee review committee -- which includes representatives of Bodenstein's office, Kmart and the various creditors' and shareholders' committees -- also keeps an eye on the retailer's bills.
It has recommended that those billing Kmart charge only for coach airfares and hotel stays of no more than $250 a night in New York, and has said it will not pay for expenses such as liquor or in-room movies.