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LeClairRyan Files for Chapter 11 Bankruptcy (1)

Sept. 3, 2019, 2:10 PMUpdated: Sept. 3, 2019, 4:33 PM

LeClairRyan has filed for Chapter 11 protection in Virginia after announcing back in August that it would dissolve following years of decreasing revenue and partner departures.

The firm listed estimated assets and liabilities between $10 and $50 million, in its filing with the U.S. Bankruptcy Court for the Eastern District of Virginia.

The Richmond, Va-based firm also indicated that it has anywhere between an estimated 200 and 999 creditors. The list of creditors with unsecured claims in the filing include law firm Latham & Watkins, which the document says is owed $370,243.44, and Integreon, a major alternative legal services provider.

Other major creditors listed include Matrix One Riverfront Plaza LLC in New Jersey, Super-Server LLC in Richmond, and Thomson Reuters.

For its filing the firm has retained Hunton Andrews Kurth, another firm with Richmond roots, as its legal counsel. The co-head of its bankruptcy and restructuring practice Tyler Brown and partner Jason Harbour are serving as lead attorneys.

The Aug. 7 announcement by LeClairRyan’s partnership that the firm would wind down operations was the culmination of years of problems. LeClairRyan reportedly struggled due to lack of support for key practice groups and partner compensation that was in some cases excessive and unaligned with the firm’s billing scale. The firm’s co-founder Gary LeClair also may have anticipated changes to law firm ownership rules far too early.

LeClairRyan did not immediately respond to request for comment on the filling.

A declaration in the Chapter 11 case filed by Lori Thompson, LeClairRyan’s general counsel and former head of its office in Roanoke, Va, said that she has been tapped to serve as chair of a committee overseeing the dissolution of LeClairRyan.

Thompson left the firm on Aug. 19 and is now a partner at Spilman, Thomas & Battle, a Virginia-based firm now home to several other former LeClairRyan attorneys.

Founded in 1988 as a legal boutique for emerging growth companies LeClairRyan grew into a national law firm that reached 385 attorneys, including 160 shareholders, across 25 offices nationally. But in recent years the firm experienced declines in gross revenue and profitability leading to attorney departures, which accelerated in 2019, Thompson’s declaration said.

“As a result, LeClairRyan was left with office and other overhead expenses in excess of declining revenues, thus inhibiting the firm in its efforts to return to profitability,” it read.

Bankruptcy Details

The declaration from Thompson also revealed new information about the firm’s financial troubles in the years leading up to its dissolution.

On December 29, 2017, LeClairRyan entered into a loan agreement with Virginia-based ABL Alliance LLLP, which provided the firm with a revolving $15 million credit line, according to the document.

But on July 16 of this year, ABL sent LeClairRyan a notice of default on the loan. Three days later, Thompson stated that the firm agreed to “grant further rights to the lender concerning the debtor’s use of its cash, accounts receivable and related property.” LeClairRyan then paid down the loan amount— which on July 19 was approximately $9.8 million — to $6.8 million at the time of its bankruptcy filing today, the declaration said.

The filing also gives some insight into the firm’s unusual partnership with alternative legal service provider UnitedLex.

In April 2018, the two entered into a joint venture to create ULX Partners. More than 300 of the firm’s administrative and legal support professionals were rebadged to ULX through the venture in exchange for fees payable by LeClairRyan to ULX.

LeClairRyan believed that this would improve LeClairRyan’s financial position but despite its best efforts, the firm could not stop the wave of attorney departures, Thompson’s declaration stated.

On December 20, 2018, LeClairRyan entered into an outstanding deferred loan promissory note by which the firm agreed to pay ULX Partners $8 million for outstanding fees owed by LeClairRyan under its joint venture agreement. To date, the $8 million plus interest is still outstanding, according to the declaration.

On July 29, LeClairRyan partners determined that dissolution was in the best option.

In the declaration, the firm proposes to pattern its wind down plan on other law firm bankruptcies in which the dissolving firm"contemplated a short period of operation while client matters were smoothly transitioned to successor firms.”

Menlo Park, Calif.-based consulting firm Protiviti is serving as financial adviser to LeClairRyan as it seeks to liquidate its remaining assets.

The declaration also revealed that LeClairRyan intends to shift all its wind-down operations from its leased locations to office space leased by its joint venture ULX Partners in the coming weeks.

According to the filing, ULX Partners has a “second-priority lien in LeClairRyan’s assets,” which include its accounts receivable and other rights of payment.

(Updated with information from Thompson Declaration throughout)

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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