Sedgwick Bankruptcy Plan OK’d, 47 Partners to Pay $1.9 Million

A group of 47 former Sedgwick partners will soon pay $1.9 million of their former compensation and capital payments to settle claims that were part of a bankruptcy plan accepted by a federal judge.

While the plan’s acceptance on Thursday brings some certainty to that group after a long process, 19 other partners who did not settle could face a legal battle to claw back payments from the firm.

A financial analysis estimated that litigation over clawback claims with those non-settling partners could bring the liquidation trust an extra $683,000 for creditors.

San Francisco-founded Sedgwick folded in January 2018 after 85 years. The firm filed for bankruptcy the following October.

The settlement with former partners avoids litigation over when the firm became insolvent and avoids an expensive Chapter 7 liquidation process.

The insolvency date is important because it allows the law firm’s creditors to lay claim to any payments Sedgwick subsequently made to partners. Under normal circumstances, law firms typically return capital payments to partners when they leave the firm. In a bankruptcy setting, those payments are hotly contested.

The $2 million to be paid by the 47 partners is equal to about 104% of the claims against them as of May, 2017, according to court documents. That date represents something close to a midpoint between when the creditors and the law firm argued Sedgwick became insolvent.

It is not known what individual partners paid as part of the settlement. They faced varying claims based on on how much they had made in compensation and capital returns.

The case is In re: Sedgwick LLP, Bankr. N.D. Cal., 18-31087, Bankr. N.D. Cal., No. 18-31087.