A federal judge has agreed to convert LeClairRyan law firm’s bankruptcy case from Chapter 11 reorganization into a Chapter 7 liquidation.
But converting the case and appointing a court-appointed liquidator won’t happen until noon on Oct. 4.
The acting regional U.S. trustee had asked that the legal giant’s case be converted immediately along with the appointment of a liquidator.
But during a hearing last Thursday, U.S. Bankruptcy Court Judge Kevin R. Huennekens denied the trustee’s request for an immediate conversion.
Representatives from LeClairRyan along with ABL Alliance LLLP, which provided the firm with a loan that has an outstanding balance of $6.8 million, agreed to wait until Oct. 4 to have case converted to Chapter 7.
ABL Alliance’s loan was part of a $15 million revolving credit that was taken out on Dec. 29, 2017, and is secured by a first-priority lien to LeClairRyan’s assets, including the firm’s accounts receivable.
The firm’s performance on collections of its accounts receivable since filing its bankruptcy petition on Sept. 3 has been below expectations, ABL Alliance said in court documents.
The cash collections were about 43% below budget for the first week after the petition was filed and 28% below budget for the second week, court filings show. At the same time, second week expenses were 20% greater than the budgeted.
“The unfortunate reality is that cumulative collections have faltered to unacceptable levels despite continuity with the debtor-in-possession in control under Chapter 11,” ABL Alliance said in court documents.
“Moreover, expenses are increasing due in part to excessive and highly compensated staffing by the debtor, personnel inefficiencies, and excessive IT expenses. The combined underperformance on collections and high level of unnecessary expenses are not sustainable,” the documents said. “Absent conversion, it is highly unlikely that the debtor will be able to pay the obligations due to [ABL Alliance] and the administrative expenses in full.”
John P. Fitzgerald III, the acting regional federal trustee, had filed a motion on Sept. 12 asking that the case be converted and that a Chapter 7 trustee be named “in an attempt to stop the hemorrhaging,” citing diminishing cash flow and rising expenses.
Huennekens said in his order that the U.S. trustee will appoint the Chapter 7 trustee.
On Sept. 3, LeClairRyan filed for Chapter 11 bankruptcy protection, listing between $10 million and $50 million in estimated assets and liabilities.
LeClairRyan ceased operations in early August when its partners voted to start an orderly wind-down of its business after experiencing dramatic declines in gross revenue and profitability and an exodus of lawyers in recent years. The firm, founded in 1988, grew into 25 offices with nearly 400 attorneys at its peak.