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The Biglaw firm of LeClairRyan has been banned by their lender from paying former partners’ capital contributions, according to a report from Law360.
As you may recall, the firm has a lot of former partners floating around these days — the firm lost almost 10 percent of its headcount in 2018 due to lateral moves, and partners continue to depart for greener pastures in 2019. Indeed, just this week, the firm lost four attorneys from their Boston office to McGlinchey Stafford, three IP partners to California firm Burke Williams & Sorensen, and another five attorneys across the northeast to Duane Morris. (Though the firm did expand with the addition of a Dallas office earlier this year.)
According to the letters obtained by Law360 from ex-partners, the firm’s general counsel is letting them know they can’t get back the money they put into the firm as scheduled as it would violate the leverage ratio in their loan documents:
In the first of the letters, the firm’s general counsel Lori D. Thompson informed the former LeClairRyan attorneys that the firm’s lender said in February that disbursing capital redemption payments would put the firm in violation of its loan covenant regarding its leverage ratio.
She wrote that the Virginia-based national firm expected to resume payments to the former shareholders as quickly as it can, and would keep them apprised when that would happen.
“We have been working closely with our lender in an effort to have that restriction lifted,” Thompson wrote.
In a subsequent status update letter, Thompson said the deferment on payments was still in place and offered the former shareholders an opportunity to review additional details about the firm’s finances, provided they signed and returned a nondisclosure agreement.
In a statement on the matter, Thompson stressed the firm intends to resume the return of capital when it’s able:
“Our firm’s corporate documents prescribe when and how capital will be redeemed and impose limitations on making such payments, as I would assume every law firm’s governing documents would do,” Thompson told Law360 on Thursday.
“The purpose of the limitations is to protect the financial position of the firm,” she added. “Consistent with those documents, redemption of capital has been deferred and payments will resume when those limitations are no longer applicable.”
While it is not unusual for firms to have restrictions on the redemption of capital, the volatile composition of LeClairRyan’s partnership has put the issue into sharp relief.
Kathryn Rubino is a Senior Editor at Above the Law, and host of The Jabot podcast. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter (@Kathryn1).