A federal trustee wants to have a court-appointed liquidator overseeing the LeClairRyan law firm’s bankruptcy case, citing diminishing cash flow and rising expenses.

The acting regional U.S. trustee asked the U.S. Bankruptcy Court in Richmond last week to convert the Richmond-based legal giant’s Chapter 11 reorganization case into a Chapter 7 liquidation.

The move comes 10 days after LeClairRyan filed for Chapter 11 bankruptcy protection, listing between $10 million and $50 million in estimated assets and liabilities.

“The case should be converted [so] that a Chapter 7 trustee can be put in place in an attempt to stop the hemorrhaging, make decisions about what contracts to assume or reject, and start paving the road to recoveries from avoidance actions,” John P. Fitzgerald III, the acting regional trustee, wrote in his motion filed Thursday.

“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,” the motion said.

“There is no hiding that this case consists of a wind-down,” the motion said. “And there is no hiding that it is the debtor and the lender’s intent that the case will eventually convert to Chapter 7. The only question is when that will be.”

The trustee’s office, a unit of the Justice Department, enforces federal bankruptcy laws. A hearing on the trustee’s motion is scheduled for Sept. 26.

Lawyers with Hunton Andrews Kurth LLP, who are representing LeClairRyan in its bankruptcy case, could not be reached for comment.

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.

The firm created a dissolution committee, now consisting of two former partners who are orchestrating the wind-down with the help of about eight other employees.

The committee is attempting to collect the remaining accounts receivables, the trustee said in the motion.

But in arguing to convert the case, the trustee said that the firm’s cash flow is diminishing, while its expenses will increase if the case continues in Chapter 11.

LeClairRyan was slated to collect a total of $4.425 million in cash receipts during the first four weeks of the case, according to its planned budget cited by the trustee. It collected $1.306 million in the first week that ended Sept. 6.

“The report for the first week shows that the projected collections are significantly lower than what had been projected by over 40%,” the motion said. “While the fee collections have not been coming in at the rate originally expected, the operating expenses continue at the tune of approximately $228,000 a week (or $910,000 during the first four weeks).”

The projections now reflect the firm will have about $452,000 in cash as of the fourth week — “a substantial decrease from the initial cash available during the first week of the case of $932,000,” the court document shows.

The firm’s largest expense, the motion said, is payments to ULX Partners, the joint venture LeClairRyan created in 2018 with legal services provider UnitedLex Corp. to have an alternative staffing model for a law firm. ULX Partners hired more than 300 administrative and legal support professionals from LeClairRyan. Eight members of the wind-down team are employed by ULX Partners.

LeClairRyan is one of the larger law firms to close in recent years in Virginia and nationally.

The firm’s liabilities include an outstanding balance of $6.8 million on a secured loan by ABL Alliance LLLP. The 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 receivables.

LeClairRyan also owes ULX Partners $8 million plus interest after signing a loan agreement in December, court records show.

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