The Richmond-based law firm of LeClairRyan PLLC converted its Chapter 11 bankruptcy to Chapter 7 last Friday, Oct. 4, with a trustee taking over liquidation proceedings.
U.S. Bankruptcy Judge Kevin R. Huennekens approved the move Sept. 26, observing it was unusual to order a conversion for a later date.
The filing was “always destined to be a Chapter 7 case,” Huennekens said. “It was just a question of how it was going to be done.”
The one-week delay came at the request of Tyler P. Brown, the lead attorney from Hunton Andrews Kurth LLP representing LeClair. A key lender agreed to the plan.
Brown said he requested the extension on behalf of the debtors, who believed there were “significant tasks to be performed” before the case was handed off to a trustee, including sorting through “500 or more boxes in Glen Allen of client information that haven’t been indexed.”
Brown said the week-long extension would give LeClair adequate time to contact clients and provide them with electronic copies of their files upon request.
Brown added that postponing the conversion also would give LeClair the ability “to pay payroll” — also due Oct. 4 — after which the law firm would be “current with all employees.”
“This doesn’t have to be an immediate conversion,” Brown said. “In fact it shouldn’t be an immediate conversion.”
The bankruptcy filing lists between $10 million and $50 million in assets and liabilities. LeClair originally owed $6.8 million to its primary lender, ABL Alliance. That amount has since come down to $5.1 million, said Douglas Foley, the McGuireWoods attorney representing ABL.
Foley noted this is a “very large and important credit” for his client. As such, ABL’s biggest concern is keeping the conversion “as less clunky as possible.”
“This is not a complex case… It belongs to Chapter 7,” Foley said. “But we’re in favor of a smooth transition. If an extension is the way to do that, then we’re in favor.”
Robert B. Van Arsdale, attorney for the U.S. Trustee, said LeClair’s concerns for postponing the conversion were “more illusory than real.”
“I don’t know that there’s a reason to delay this,” Van Arsdale said.
LeClair filed for bankruptcy under Chapter 11 on Sept. 3. The filing was signed by Lori Thompson, chair of LeClair’s dissolution committee, approximately a month after the law firm announced it was beginning an “orderly wind down” of its business following declining revenue and attorney departures, according to a press release.
LeClair stated in a consent form included in the filing that it is “in the best interest of the company, its creditors, stakeholders and other interested parties,” to file for Chapter 11.
Though Brown said his client “envisioned Chapter 11 would be a useful tool,” they anticipated there would come a time to transition to a Chapter 7 trustee.
The next hearing is scheduled for Oct. 24 in Richmond.