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Trustee calls for action to end ‘hemorrhaging’ at LeClair

The U.S. Trustee’s office says a bankruptcy judge should promptly appoint a supervisor for the wind-down of LeClairRyan PLLC. The trustee urges the presiding judge to convert the firm’s bankruptcy action to Chapter 7 to try to stem the tide of administrative expenses in the face of collection shortfalls.

“Not only is the cash flow diminishing, but the expenses are only going to increase if the case continues in Chapter 11,” wrote Acting U.S. Trustee John P. Fitzgerald in a Sept. 12 motion.

LeClairRyan is continuing to manage its business since it filed for bankruptcy protection under Chapter 11 on Sept. 3. Under Chapter 7, a trustee would be appointed to manage the firm’s dissolution.

Fitzgerald said figures suggested collections during the law firm’s first week in bankruptcy were well below projections while expenses were quickly diminishing the available cash. A Chapter 7 trustee could possibly “stop the hemorrhaging, make decisions about what contracts to assume or reject, and start paving the road to recoveries from avoidance actions,” Fitzgerald wrote.

The firm has acknowledged the need for eventual conversion to Chapter 7, he said,

“Delaying conversion would only saddle the estate with additional administrative expenses and render the transition to a Chapter 7 harder as the few employees left will continue to leave leaving the trustee with little to no historical knowledge or support,” Fitzgerald said.

A hearing before U.S. Bankruptcy Judge Kevin Huennekens is scheduled Sept. 26.