LeClairRyan Bankruptcy Highlights Pass-Through Tax Issue

Types : Bylined Articles

The first few weeks in bankruptcy are a blur of deadlines. A debtor is required to file with the bankruptcy court certain schedules, statements and disclosures that provide a snapshot of the debtor’s present financial situation and the events leading up to bankruptcy. One of those required disclosures is the seemingly innocuous Bankruptcy Rule 1007(a)(3) list of equity security holders, which must be filed within 14 days after entry of the order for relief.[1]

This list can be especially important in the rare instance that the debtor has enough assets to both pay its creditors in full and make a distribution to its equity holders, but can also be important in an entity taxed under Subchapter K of the Internal Revenue Code.

Commenced in 2019, the LeClairRyan PLLC bankruptcy case in the U.S. Bankruptcy Court for the Eastern District of Virginia rages on, as the parties continue to dispute myriad issues, including accusations against Gary LeClair, the founder of the firm, and his affiliates relating to alleged backdoor deals and dubious funding schemes.

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Authors Edward Schnitzer and Hannah Travaglini