Distressed Businesses Should Still Pay Their Lawyers

Businesses facing financial problems or other types of challenges usually need to hire lawyers. For instance, companies being sued by disgruntled investors for mismanagement may need to secure counsel, and businesses headed for restructuring might need lawyers to handle the complicated bankruptcy process. Such companies may want to cut costs to focus on vital business operations, and this might mean stiffing the lawyers they hired. However, this tactic can be shortsighted and cost businesses dearly in the long term.

One reason why distressed businesses should not skimp out on paying their lawyers is that attorneys can minimize the amounts owed by such companies or delay payment of sums. For instance, if a lawyer represents a company that owes money to a creditor, the lawyer can be essential in raising defenses, delaying payment of sums owed, and negotiating a payment plan that might make it easier for the company to pay off the debt. However, if a business does not have counsel, the creditor can conceivably obtain a default judgment and begin using that to create difficulties for a business. The amount of money a business may owe in legal fees is small in comparison to the pain that could be caused by going without counsel altogether.

Another reason why it is usually best for distressed businesses to pay their counsel is since such lawyers might be essential to the continued operation of a business. For instance, distressed companies might seek restructuring to help them survive a financial crisis. This usually requires that bankruptcy lawyers and other types of attorneys complete the appropriate filings and take other legal action to ensure that the restructuring process is successful. If this process is not complete, shareholders can lose far more money if a company goes out of business than they would have to pay if the businesses had competent lawyers working on a problem.

It also usually does not pay for distressed companies to delay payment to lawyers or make it difficult for attorneys to receive their fair compensation. Lawyers usually have numerous clients and limited time they can devote to client tasks. Attorneys therefore spend the most time on clients that treat them well by paying invoices promptly and not giving the lawyer issues in other aspects of the representation. In addition, lawyers may not want to accept new matters from clients that have payment issues, and businesses then would have inefficiencies in having to secure additional counsel that might not be as familiar with a company’s needs.

Distressed companies often need premium legal services the most since any defenses that can be raised or money that could be saved from the work of counsel might have a monumental impact on a business. However, such businesses can jeopardize the type of representation they receive by not paying their lawyers or by otherwise making it difficult for lawyers to receive their fair compensation. As a result, it is extremely short-sighted for businesses to short-change their lawyers, since this usually has a negative impact on the company in the long-term.

Some companies have such limited resources that they simply do not have the money to pay their vendors, including their lawyers, and such companies cannot avoid letting legal invoices go unpaid. But if distressed companies have resources, and need to decide where to best apply such resources, they should understand that paying lawyers and keeping them happy can have long-term dividends for a business facing difficulties.

Jordan Rothman is a partner of The Rothman Law Firm, a full-service New York and New Jersey law firm. He is also the founder of Student Debt Diaries, a website discussing how he paid off his student loans. You can reach Jordan through email at jordan@rothman.law.