Bankruptcy pays well

Paul Abate is 60 and has 16 years in at Malden Mills, where he makes about $15 an hour as the lead man overseeing five huge machines at the bankrupt textile plant. Abate has only a shot at collecting the $5,327 Malden Mills owes him as one of hundreds of unsecured creditors, but just hopes to hang onto his job. Mark Fucci, a bankruptcy lawyer at Bingham McCutchen, bills out at $750 an hour and is a sure bet to get paid. Unlike Fucci, Abate can't expense his lunch.

Our American economy is a wonderful thing, but no one called it fair. And nowhere is it harder to sometimes watch than in bankruptcy court, the ultimate scrum for capitalism's leftovers. Malden Mills is a case in point.

An army of lawyers will be in court in Worcester this morning, the company's second pass through bankruptcy court since a fire famously destroyed Aaron Feuerstein's beloved Lawrence textile mill just before Christmas in 1995 and its third filing since 1981. Think of it as a Chapter 33 filing -- Chapter 11 times three. The newest bankruptcy filing came on Jan. 10 -- or 14 hours after the previous bankruptcy case was officially closed. Of the maneuvering around the new filing, US Bankruptcy Judge Joel B. Rosenthal wrote: "Even if not outright fraud, this clearly rises to the level of 'something approaching deceit.' "

It remains far from certain that Malden Mills' 700 employees, who average about $16 an hour, will survive this latest bankruptcy. The current prospective buyer, Chrysalis Capital Partners, has committed only to keeping the mill open for 91 days after the deal closes. An auction will determine the eventual buyer. But in the meantime it is a good ride -- for some.

Start with the lawyers and financial advisers. Bingham McCutchen, the big Boston firm, has been paid $1.2 million as Malden Mills' corporate counsel in the past year. A New York firm, Kramer Levin, has also been paid $1.2 million for bankruptcy work. Investment banker Conway DelGenio Gries has received $645,000. Bingham's fees top out at $925 an hour, according to court documents, with expenses billed separately.

The meter continues to run, of course. But taken together the $3 million paid so far to the lawyers and the investment advisers equals about half the $6.1 million that Malden Mills owes the workers' pension fund. It nearly equals the $3.2 million in claims by individual workers. And as unsecured creditors, the pension fund and workers may well be out of luck.

Malden Mills' top executives have done better. Chief executive Michael Spillane, for instance, was paid $1.4 million last year, which includes a $900,000 bonus, according to court documents. In addition, Spillane and a handful of other top executives and outsider directors are looking to share a bonus pool just for staying on the job. For Spillane alone that could be worth another $300,000. Aaron Feuerstein, by the way, made $354,000 last year. His wife, Eva-Louise, made about $84,600. Paul Abate didn't make the bonus list for staying.

"We have all gotten our clocks cleaned," says Spillane. "The professionals [lawyers and bankers] have done well." He puts professional fees at $45 million since 2002.

CEOs and bankruptcy lawyers make more than mill workers. But at what point do the huge fees and huge bonuses start smelling like a feeding frenzy? In his order last week, Judge Rosenthal pointedly criticized Malden Mills and its agent, G.E. Capital Commerce Finance, for "a lack of candor" in trying to maneuver the case into the Delaware courts.

It is up to the judge not to compound a lack of candor with a lack of fairness. If the little guy on the factory floor is going to take a haircut, so should the hired guns who are, after all, just passing through at $750 an hour.

Steve Bailey is a Globe columnist. He can be reached at bailey@globe.com or at 617-929-2902.