The majority of Dewey's partners have quit as a result of concerns about compensation, and $225 million in bank loans and bond debt.

Buyers of distressed debt who have acquired Dewey's debt at a discount on the secondary market are more open to seeing the firm wound down in bankruptcy court rather than out of it, said the person, who requested anonymity because the information was not public.

With the emergence of new creditors, Dewey on Tuesday replaced restructuring adviser Development Specialists Inc. (DSI) with competitor Zolfo Cooper. Joff Mitchell, a senior managing director at Zolfo, is now Dewey's chief restructuring officer, two people familiar with the situation said.

Bill Brandt, chief executive of DSI, confirmed that his firm's involvement in the matter was coming to an end.

"Our firm is transitioning out," Brandt said. "We've been replaced by Zolfo at the insistence of the debt holders. It now becomes a creditor-driven case."

A bankruptcy filing is not certain, and the timing of any potential filing remains unclear. The firm has been consulting with restructuring lawyers since April at the latest, and has retained bankruptcy attorney Albert Togut of law firm Togut Segal & Segal.

Neither Stephen Horvath III, Dewey's executive partner, nor Janis Meyer, its general counsel, responded to requests for comment. Mitchell and a spokesperson for Zolfo also did not respond to requests for comment.

Togut did not respond to a request for comment on Friday.

A spokesman for the firm's primary bank lender, JPMorgan Chase & Co, declined to comment late on Friday.

Once one of the largest law firms in the United States, Dewey & LeBoeuf has lost all but a handful of the 300 partners with which it opened 2012. It has laid off 433 of 533 employees in New York, according to the New York State Labor Department.

Dewey's debtholders have been selling their stakes during the firm's downfall. As of May 3, bankruptcy analyst Kevin Starke of CRT Capital Group said Dewey's $150 million in notes privately placed following a 2010 bond offering were trading at between 45 cents and 55 cents on the dollar on the secondary market.

The shift toward a possible bankruptcy filing would be a major change in direction. As recently as March 12, Martin Bienenstock, formerly a top bankruptcy partner at Dewey and an outgoing member of the firm's office of the chairman, told the Wall Street Journal that the firm had "no plan to file a Chapter 11 bankruptcy."

"We've had a completely non-adversarial relationship with our lenders, and right now the cash we're using is the lender's collateral," he said at the time.

Bienenstock did not respond to a request for comment late on Friday. He was one of four members of Dewey's top management team, the office of the chairman, to decamp to other firms in recent days, joining Proskauer Rose. The last member of that office, Washington, D.C., lobbyist L. Charles Landgraf, said he had joined Arnold & Porter on Wednesday.

Lawsuits are mounting against Dewey. The U.S. Pension Benefit Guaranty Corporation sued the firm Monday in Manhattan federal district court in order to take control of three of the firm's pension plans, which the agency said were underfunded by $80 million.

Bankruptcies are often driven by creditors. On Wednesday, Annette Jarvis of Dorsey & Whitney, a bankruptcy lawyer who represents a group of 51 retired pension partners at Dewey predecessor LeBoeuf Lamb Greene & MacRae, said that in her view the firm "has to be put into a bankruptcy."

Jarvis did not respond to a request for comment on Friday.

(Reporting By Nate Raymond and Nick Brown; Editing by Daniel Magnowski)

• A Permanent Economic Emergency