The Justice Department is opposing Philadelphia Energy Solutions Inc.'s plans to hire Kirkland & Ellis LLP as bankruptcy counsel because the law firm also represents the oil company’s largest shareholders and largest creditors.
Bankruptcy counsel should not have an interest “materially adverse to the interest of the estate or of any class of creditors or equity security holders,” the U.S. Trustee, the DOJ bankruptcy watchdog, said in its Aug. 16 objection to the hiring of Kirkland. Kirkland’s duty to the equity holders and creditors show it’s not a “disinterested” party under the law, the trustee said in the filing at the Delaware bankruptcy court.
Kirkland disclosed it represents entities holding more than two-thirds of Philadelphia Energy’s equity, the U.S. Trustee said.
The trustee also objected to the refinery operator’s selection of Alvarez & Marsal North America LLC as its restructuring advisors. It said that Alvarez shouldn’t be allowed an “evergreen” retainer—a deposit that’s replenished every time a firm draws against it for fees—because Alvarez already has a $1 million retainer and gets favorable payment terms from the bankruptcy court’s earlier orders.
Philadelphia Energy July 21 filed its second Chapter 11 case in a less than a year, about a month after catastrophic explosions and fires forced the company to close its refineries in South Philadelphia.