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U.S. Trustee Motions to Move LeClairRyan to Chapter 7

Sept. 13, 2019, 6:32 PM

Two weeks after it filed for bankruptcy protection a U.S. Trustee has filed the motion to put dissolving law firm LeClairRyan’s bankruptcy proceedings into the hands of a court-appointed liquidator.

John Fitzgerald III, the acting trustee for the region, filed the motion to convert the Richmond, Va-based firm’s Chapter 11 filing to a Chapter 7 with the Eastern District of Virginia on Sept. 12, citing diminishing cash flow amid increasing expenses.

Following the firm’s Sept. 3 Chapter 11 filing, it received an interim order by the court approving settlement procedures concerning the potential discount and settlement of accounts receivable and authorizing the firm’s use of cash collateral.

LeClairRyan was to collect a total of $4,425,000 in cash receipts during the first four weeks of its bankruptcy case with $1,306,000 collected by the week ending Sept. 6 based on the approved interim budget, the filing noted. Also pursuant to the interim budget, payroll, taxes and benefits amounted to $421,000 as of the end of the fourth week.

But the report for the first week shows that the projected collections are significantly lower than expected, over 40 percent, Fitzgerald’s filing said.

The projections also reflected that as of the fourth week of the bankruptcy case the available cash would amount to $452,000 — a substantial decrease from the initial cash available during the first week of $932,000, it said.

And while the fee collections have not been coming in at the rate expected, according to the filing, LeClairRyan’s expenses continue at $228,000 per week, with the largest expense being paid to ULX Partners, the firm’s joint venture with alternative legal services provider UnitedLex.

“Not only is the cash flow diminishing, but the expenses are only going to increase if the case continues in Chapter 11,” the filing read.

The filing also noted agreement from the parties that Chapter 7 was the best way forward.

It said Chapter 5 actions “are the crux of this case” in the near future. Chapter 5 in the bankruptcy code gives the bankruptcy trustee powers to recover property for the benefit of creditors. The actions could include suits to claw back payments made to partners prior to the bankruptcy.

“The case should be converted that a Chapter 7 Trustee can be put in place in an attempt to stop the hemorrhaging, make decisions about what contracts to assume or reject, and start paving the road to recoveries from avoidance actions,” the filing read.

Legal Fees


The firm’s decision to dissolve and file for bankruptcy followed years of declining revenue and lateral partner departures.

Hunton Andrews Kurth is representing LeClairRyan in its bankruptcy filing, with the co-head of its bankruptcy and restructuring practice Tyler Brown and partner Jason Harbour serving as lead attorneys.

In its motion to employ also filed on Sept. 12, Hunton notes that it received advanced retainer payments of $375,000 ahead of the firm’s petition date. Following the filing, Hunton adjusted its prepetition fees and expenses totaling $360,602.

Hunton also noted its hourly rates for its attorneys in the case, with Brown billing at $883 an hour; Harbour at $736 and its associates ranging from $622 to $427 an hour.

LeClairRyan also filed a motion on Thursday to use financial advisor Protiviti Inc. in the bankruptcy proceeding. The California-based consulting firm noted the hourly rates for its professionals range from $630 to $600 for its managing directors; $525 to $385 for its associate director and directors; and $365 to $295 for its manager and senior managers.

Also found in the filings are counsel for UnitedLex Corp and ULX Partners, which will work with Greenberg Traurig’s David Barger and Thomas McKee Jr.

To contact the reporter on this story: Meghan Tribe in New York at mtribe@bloomberglaw.com

To contact the editors responsible for this story: Jessie Kokrda Kamens at jkamens@bloomberglaw.com; Rebekah Mintzer at rmintzer@bloomberglaw.com

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