Proposed Program
A portion of the $700 billion authorized under the Emergency Economic Stabilization Act of 2008 (the “Act”) will be used to fund the Client Receivables Acquisition Program (“CRAP”).
Law firms eligible to participate in CRAP may sell client receivables to the U.S. government, thereby receiving payment for fees billed to clients who are unable, unwilling or unaware of their obligation to pay for legal advice.
Law Firm Eligibility
To be eligible to participate in CRAP, a law firm must have —
- its head office in the U.S.,
- “significant operations” in the U.S., or
- “substantial ambitions” in the U.S.
An eligible law firm must also belong to one of the following categories:
Law firms that are deemed to be “financial institutions” within the meaning of the Act. A law firm may be treated as a financial institution if the average age of its inventory and client receivables is equivalent to 12 or more working capital weeks or if Treasury determines that the firm has otherwise become, in effect, a provider of long‑term financing to its clients.
Law firms whose participation in CRAP is “necessary to promote financial market stability” for purposes of the Act. If more than 50% of a law firm’s annual revenues (on an accrual basis) are from clients who are “financial institutions” within the meaning of the Act, then Treasury may determine that purchases of the firm’s client receivables are necessary to promote financial market stability.
Law firms whose impact on local economic conditions is deemed to be unusually significant. Under program guidelines to be issued by Treasury, eligibility for participation in CRAP may be extended to a law firm whose overhead expenses on a per-lawyer basis exceed 120% of the average for its peer group, or if the firm is otherwise determined to have an unusually significant impact on the local labor, real estate or catering markets.
Troubled Receivables
A receivable from a client will be CRAP-qualifying if —
- the client has entered bankruptcy or insolvency proceedings;
- the client is eligible to participate in TARP;
- the client has been acquired by a non-client (or acquired by another client, whose relationship with the law firm is classified as “distressed” under applicable Treasury guidelines);
- the receivable relates to a “busted” deal or a failed bid;
- the receivable relates to litigation that was settled prior to final adjudication on the merits;
- the amount of the receivable exceeds 120% of the original fee estimate; or
- the receivable has been outstanding for more than 30 days.
Disputed Receivables
In addition, under program guidelines to be issued by Treasury, a receivable whose validity has been challenged by the client may still qualify for CRAP if the receivable represents fees billed in connection with —
- work that the law firm reasonably believes it was instructed to perform,
- work that the law firm believes in good faith it should have been instructed to perform, or
- work that the law firm would have been instructed to perform had it won the client’s beauty contest.
Program Pricing
General rule. Treasury will generally purchase a CRAP-eligible law firm’s CRAP-qualifying client receivables at a price that permits 100% fee recovery at the law firm’s standard hourly rates, without regard to any discount previously agreed with the client, plus any premium that Treasury determines would promote financial market stability.
Exception for certain discounts. Notwithstanding the foregoing, the purchase price of the receivables may reflect global discount arrangements with the client if, at the time the arrangements were negotiated, the client’s executives were compensated in a manner consistent with the Act’s executive compensation standards for participants in TARP auctions.