The NRA is running in Texas, but it may not be able to hide with bankruptcy

The National Rifle Association is about to find out what happens when the unrestricted embrace of the Second Amendment faces the US Bankruptcy Code.

The group is trying to circumvent New York’s regulators and the state’s fraud process by filing for bankruptcy in Dallas and moving to Texas, gun-friendly, claiming support for the right to bear arms. But the case filed last week could face a lot of legal challenges at a first court hearing on Wednesday, which could undermine ANR’s plan or even add to its troubles.

Opponents could demand that the case be dropped altogether, as the ANR says it is not really bankrupt. If the case progresses, the usual revelations could expose several of ANR’s internal affairs to the control of critics, including Letitia James, the New York Attorney General. James sued for dissolving the organization and accused leader Wayne LaPierre and three others of fleeing him. LaPierre has challenged the New York allegations.

“I looked at this and laughed,” said Thomas J. Salerno, a Phoenix-based corporate bankruptcy partner with law firm Stinson LLP. Texas may have a pro-gun reputation, but bankruptcy judges are appointed federals who will abide by the law, not local politics, Salerno said. At best, the ANR can only slow down the New York investigation, he said.

ANR will be in court today before US bankruptcy judge Harlin D. Hale in Dallas. Although it is unlikely to make a final decision during the hearing, the judge may decide to dismiss the case because ANR said it is not insolvent or bankrupt and told members that the group is in “the strongest financial condition in recent years.” .

Court documents show assets of about $ 203 million – mostly in cash, investments, receivables and headquarters – against debts of $ 153 million. Revenues in 2020 decreased by 7% compared to the previous year; ANR said it reduced spending by 23% and asked employees who remained at work to take pay cuts.

The political environment

One In a statement announcing the filing, ANR said it had gone bankrupt to get rid of the “toxic political environment in New York” and to regroup in Texas, while allowing it to “streamline costs and expenses.”

“If you take into account what ANR says, it is a strong argument for dismissing the case because of a lack of good faith,” said Robert Lawless, a professor at the University of Illinois College of Law. “He’ll have to come up with some financial reasons to do that.”

ANR gave a somewhat different explanation in the court documents. “To be clear: the NRA is not trying to escape regulatory oversight,” the group said. “However, it cannot allow its constitutional rights to be violated or its existence destroyed by a political vendetta.” He said the constitution guarantees people the right to free speech, to carry weapons for self-defense “and to seek a new beginning in bankruptcy court, where appropriate. The successful reorganization of ANR in Texas will affirm and promote all these rights. ”

Under the U.S. Bankruptcy Code, a reorganizing company can leave behind legal liability related to a civil lawsuit. This would require Hale to approve a reorganization plan that would release the newly reorganized ANR and its directors from the legal claims New York makes in its process. Such conclusions can be challenged by creditors and can be challenged in a higher court.