Dewey & LeBoeuf goes bust with debts of $245m

The clients and partners of Dewey & LeBoeuf were last night picking up the pieces after the biggest-ever failure of an international law firm, in a tale of how oversize ambition and lashings of debt can destroy even a storied legal giant.

The firm filed for Chapter 11 bankruptcy protection in New York late on Monday, marking the conclusion of a long death spiral that began earlier this year when it tried to cut the pay of its generously remunerated partners. The resulting partner defections decimated the firm and it told bankruptcy court that it now owed $245m (£160m), compared with assets of just $193m.

Dewey & LeBoeuf had also built a substantial London office, where 140 lawyers worked on corporate mergers and acquisitions and financial deals that spanned Europe. Yesterday, on both sides of the Atlantic, the firm was reduced to a rump of a few dozen employees who will work to wind down what is left of the business.

Joff Mitchell, Dewey's chief restructuring officer, said the firm had been hobbled since its creation by the merger of Dewey Ballantine and LeBoeuf, Lamb, Green & MacRae in 2007 – just before the financial crisis struck. "These negative economic conditions, combined with the firm's rapid growth and partnership compensation arrangements, created a situation where the cash flow was insufficient to cover capital expenses and full compensation expectations," he said.

In the UK, the insolvency firm BDO appointed Mark Shaw and Shay Bannon as joint administrators . Mr Shaw said: "D&L UK has generated significant profits, but it could not escape the serious issues which have affected the Dewey & LeBoeuf global business. We have worked with D&L UK's management, the legal regulators and other stakeholders over the last few weeks to ensure that client interests and files are protected."