Metro

  • Written by Brian Mittendorf, Fisher Designated Professor of Accounting, The Ohio State University

Editor’s note: Although the National Rifle Association is headquartered in Northern Virginia[1], it is incorporated in New York. The gun group recently announced a new “strategic plan” to restructure under bankruptcy[2] and reincorporate in Texas. The Conversation U.S. asked accounting scholars Brian Mittendorf[3] and Sarah Webber[4] to answer five key questions related to the NRA’s intentions.

1. What precipitated this announcement?

New York Attorney General Letitia James[5] sued the NRA in 2020 over alleged financial irregularities, such as improperly making millions of dollars in payments to benefit longtime leader Wayne LaPierre[6] and other executives[7]. Among the lawsuit’s allegations is a claim that the NRA tried to disguise trips to the Bahamas and other forms of lavish compensation as business expenses. James seeks to dissolve the organization. Though it disputes many of the charges, the organization has admitted to experiencing a “significant diversion of assets[8]” through reimbursements for personal expenses. These issues have also resulted in litigation stemming from the relationship with marketing and public relations firm Ackerman McQueen[9].

A New York state judge on Jan. 21 dismissed[10] the NRA’s effort to quash the New York attorney general’s lawsuit or move it to a federal court in Albany, the state capital.

The NRA declares bankruptcy: 5 questions answered New York Attorney General Letitia James has sued the NRA. AP Photo/Kathy Willens[11]

2. How might bankruptcy help the NRA reincorporate?

When nonprofits file for bankruptcy, that generally halts pending litigation[12] while providing more time to pay off creditors. But there is an exception for actions by governments[13], such as the pending lawsuit the New York attorney general filed in 2020. The bankruptcy case could give the NRA more time[14] to proceed with reincorporation by stopping claims from creditors and also allow the bankruptcy court to decide how to distribute and organize the NRA’s assets. This shift in decision-making authority for the NRA’s assets may help the NRA with its reincorporation efforts.

3. How does the pending New York dissolution case affect the NRA’s proposed bankruptcy reorganization?

Incorporation in New York, where the group was founded 150 years ago[15], means that state regulates the nonprofit and thereby regulates the NRA’s finances. During the legal proceedings to dissolve the NRA in New York, the NRA may not transfer its assets[16]. While the NRA could set up a new corporation in Texas, the entity’s assets would not be released without consent from New York authorities. The NRA would need the bankruptcy court to have the ability to control the NRA’s assets to have a successful reorganization.

In short, given New York’s laws governing nonprofits, the NRA cannot dissolve without the state’s blessing[17]. And James responded to the NRA’s announcement by expressing her firm opposition[18] to reincorporation in Texas.

4. Is bankruptcy justified?

Thanks to the NRA’s concurrent announcement that it “is in its strongest financial condition in years,”[19] some observers have questioned[20] whether it is filing for bankruptcy in good faith. Based on the evidence currently available, it’s too early to tell whether bankruptcy is justified.

The NRA has experienced years of financial trouble[21]. There are plenty of red flags[22] indicating a financial tsunami on the horizon, but no sign yet that one has hit. The organization had losses in each of the past four years[23], eroding its financial position.

The NRA has managed to show resilience in terms of keeping cash on hand, ending 2019 with cash and investments worth over $75 million[24]. Yet because it owes substantial amounts to others, the assets that the NRA had available to use at its discretion amounted to a nearly $50 million deficit in 2019[25].

Having cut pension benefits[26], made layoffs and pay cuts[27], sold multiyear memberships[28] to boost revenues and even borrowed from its affiliated foundation[29], the organization is running low on ways to shore up funds. In its latest financial audit[30] from 2019 filed with New York authorities, the NRA disclosed that a large portion of its debts – $35 million – come due in 2021. That disclosure further suggests why now might in fact be an apt time for the NRA to seek bankruptcy protection.

5. Why does the NRA want to reincorporate in Texas?

In seeking reincorporation, the NRA would be changing its legal home and changing which state’s laws will govern it. Reincorporation would not require the NRA to relocate its main offices, which are in Fairfax, Virginia.

Texas is seen as a pro-gun and debtor-friendly state[31], and observers believe that it may offer the NRA more protection[32] against claims from its creditors. That is, the NRA may hope that a federal bankruptcy court located in Texas will be more likely to rule in its favor regarding amounts owed to creditors than a New York or Virginia court.

However, the NRA faces significant challenges with both its bankruptcy case and the attempt to reincorporate. The Texas court may throw out the bankruptcy petition or move the bankruptcy case[33] to another location with more substantial ties, such as a court in Virginia or New York.

Another hurdle for the NRA to clear is demonstrating whether the Chapter 11 reorganization[34] it wants to undergo is necessary. If not, the bankruptcy judge could determine this move is a ploy to try to evade New York’s power to potentially take control of the NRA’s assets. The NRA maintains that it filed for bankruptcy in good faith[35].

[Understand key political developments, each week. Subscribe to The Conversation’s election newsletter[36].]

References

  1. ^ headquartered in Northern Virginia (www.americas1stfreedom.org)
  2. ^ to restructure under bankruptcy (www.nraforward.org)
  3. ^ Brian Mittendorf (scholar.google.com)
  4. ^ Sarah Webber (scholar.google.com)
  5. ^ New York Attorney General Letitia James (theconversation.com)
  6. ^ benefit longtime leader Wayne LaPierre (www.nbcnews.com)
  7. ^ other executives (www.theguardian.com)
  8. ^ significant diversion of assets (www.cnn.com)
  9. ^ Ackerman McQueen (www.thetrace.org)
  10. ^ state judge on Jan. 21 dismissed (www.reuters.com)
  11. ^ AP Photo/Kathy Willens (newsroom.ap.org)
  12. ^ halts pending litigation (uploads-ssl.webflow.com)
  13. ^ exception for actions by governments (www.law.cornell.edu)
  14. ^ could give the NRA more time (www.bloombergquint.com)
  15. ^ founded 150 years ago (theconversation.com)
  16. ^ transfer its assets (www.thenonprofittimes.com)
  17. ^ cannot dissolve without the state’s blessing (www.nysenate.gov)
  18. ^ expressing her firm opposition (www.reuters.com)
  19. ^ “is in its strongest financial condition in years,” (www.nraforward.org)
  20. ^ some observers have questioned (www.bloombergquint.com)
  21. ^ financial trouble (theconversation.com)
  22. ^ plenty of red flags (theconversation.com)
  23. ^ past four years (www.washingtonpost.com)
  24. ^ cash and investments worth over $75 million (beta.documentcloud.org)
  25. ^ $50 million deficit in 2019 (beta.documentcloud.org)
  26. ^ pension benefits (www.npr.org)
  27. ^ layoffs and pay cuts (www.npr.org)
  28. ^ multiyear memberships (www.bloomberg.com)
  29. ^ borrowed from its affiliated foundation (www.washingtonpost.com)
  30. ^ financial audit (www.charitiesnys.com)
  31. ^ pro-gun and debtor-friendly state (www.texastribune.org)
  32. ^ observers believe that it may offer the NRA more protection (www.axios.com)
  33. ^ throw out the bankruptcy petition or move the bankruptcy case (www.bloombergquint.com)
  34. ^ Chapter 11 reorganization (www.investopedia.com)
  35. ^ in good faith (today.westlaw.com)
  36. ^ Subscribe to The Conversation’s election newsletter (theconversation.com)

Authors: Brian Mittendorf, Fisher Designated Professor of Accounting, The Ohio State University

Read more https://theconversation.com/the-nra-declares-bankruptcy-5-questions-answered-153423

Metropolitan republishes selected articles from The Conversation USA with permission

Visit The Conversation to see more

Entertainment News

Danny Winn-An Acting Master Class A-Z, Hollywood Hysteria !

Ah Hollywood, the land of the hopes and dreams for many an entertainer. As so many entertain the idea of relocating their life to the land of milk and honey, we must ask ourselves, is this the right career move or not? This is a question of so ma...

Danny Winn - avatar Danny Winn

ACTING 101 - Getting Noticed

We have all our tools ready to go:  resume, headshots, skills and training, typecasting, and branding.  Now we are ready to look for auditions.  Well sort of.  When we first start out, the pickens are very slim so you take what you can.  That inclu...

Paris Hepburn - avatar Paris Hepburn

SANDRA BOOKER RELEASES “UNTIL WE MEET AGAIN”

SANDRA BOOKER "Until We Meet Again" RELEASES WORLDWIDE MARCH 30TH There is something beautiful about artists whose insight into the human condition allows them to create works that meet our collective moment at a time we most need their...

News Co Media - avatar News Co Media

How Can Music Itself Survive Without Rock n Roll?

Just because you don’t hear much straightforward rock and roll on the Top 40 charts these days doesn’t mean it’s going anywhere. Its time in the mainstream limelight may not be as popular as it was when I was growing up in the 70s and what we now...

Michael Mesey, American Greed - avatar Michael Mesey, American Greed

Danny Winn-An Acting Master Class A-Z, G is for Guild

While I pondered ever so deeply to what the subject matter of G would be this week, a reader of the column came up with an important topic. To the credit of veteran stage and screen actor Rusty Meyers, we will probe into the subject of Guilds als...

Danny Winn - avatar Danny Winn

Is Rock Music a Dying Breed?

“Rock ‘n’ Roll [is here to stay, it...] can […will] never die” – David Ernest White, Neil Percival Young, etc. “Rock ‘n’ Roll is dead” – Leonard Albert Kravitz, Barrington DeVaughn Hendricks, etc. “And so on and so on and scooby dooby dooby…” – S...

Eli Soiefer/Emodulari - avatar Eli Soiefer/Emodulari

Metropolitan Business News

Perfecting Web Design For A Health-Based Website

These days, when it comes to understanding what we put into our bodies, we are more focused than ever. It seems that everywhere we look, there is another health benefit, product, or trend on the...

News Co Media - avatar News Co Media

3 Realistic Reasons Why Physical Offices Are (Almost) Dead

Nowadays, more and more businesses are trying to find alternatives to traditional offices. For many years, brick and mortar offices have been at the heart of a company’s life. But work environme...

News Co Media - avatar News Co Media

Advantages of no-code app development for businesses

A marketer may or may not have knowledge about coding. But even if you don't’ have knowledge in coding, it is easy to build an automation sequence between two apps by making use of a no code app bui...

News Co - avatar News Co

Do Directories Still Help SEO?

Directories were once one of the main staples of SEO and they were definitely in existence before search engines took over. Directories were once the main way that people navigated the world wide we...

News Co - avatar News Co

Shipping Container FAQs

If you are looking to rent or purchase a shipping container, you probably have a few questions. We have selected some of the most common questions and answered them here. We hope that you find this ...

News Co - avatar News Co

Is Duplicate Content an SEO Myth?

Any marketer you speak to about duplicate content is concerned about a “duplicate content penalty” but they are probably not very experienced with SEO. Google has specific guidelines on duplicate co...

News Co - avatar News Co

Writers Wanted


News Co Media

Content & Technology Connecting Global Audiences

More Information - Less Opinion