LeClairRyan files for bankruptcy and lists its joint venture as a creditor
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Dissolving law firm LeClairRyan filed for Chapter 11 bankruptcy on Tuesday and said it owed $8 million plus interest to ULX Partners, the company the law firm created last year in a joint venture with alternative service provider UnitedLex.
The bankruptcy filing lists between $10 million and $50 million in assets and liabilities, report Law.com, Law360 and Bloomberg Law.
LeClairRyan created ULX partners in April 2018 and transferred more than 300 nonlawyer employees to the company, who were then leased back to LeClairRyan. The law firm also owes $6.8 million to its primary lender, ABL Alliance. ABL has a first-priority lien on the firm’s assets, while ULX has a second-priority lien.
Unsecured liabilities include obligations to landlords, vendors and employees. Latham & Watkins is one of the landlords.
LeClairRyan general counsel Lori Thompson is chair of the dissolution committee. Her bankruptcy declaration described the law firm’s trajectory.
The firm was founded as a legal boutique for emerging growth companies in 1988. LeClairRyan grew into a national law firm with 25 offices and about 385 lawyers, including 160 shareholders, at its peak.
In recent years, the law firm experienced declines in gross revenue and profitability, leading to the departures of numerous attorneys. As a result, LeClairRyan had excess office space and overhead, impeding efforts to return to profitability.
The law firm had hoped the ULX Partners venture would improve its financial position, but the continued wave of attorney departures made an orderly winddown of the firm the best option, Thompson said.
Partnership expert Leslie Corwin of the Eisner law firm has been involved in many law firm bankruptcies. He tells Law.com that the bankruptcy trustee will likely create a partnership contribution plan funded by former LeClair partners to help pay creditors.
He also said the news is not good for partners who contributed additional capital and invested in the firm’s preferred stock. “Any capital accounts or preferred shares, those are probably never going to be recouped by the partners,” Corwin told Law.com.