In a heavy-bottomed 6 to 8-quart stock or soup pot, melt the butter over medium-low heat. Add the onion, garlic, bay leaf, and thyme and cook until translucent.
Add the chopped mushrooms and cook until most of the water comes out of them. Add the sherry, if you like, and reduce by half.
Add the flour and stir well to avoid lumps (if you do get some, it’s okay; they can be puréed out later). Slowly whisk in the broth or stock and bring to a simmer over medium-high heat.
Continuously stir the soup at this point, or the bottom may scorch. When the soup comes to a boil, decrease the heat to low and simmer for 20 minutes uncovered, stirring occasionally.
Finish by adding the heavy cream and nutmeg and add salt and pepper to taste. Remove the thyme and bay leaf and purée the soup either in a blender or with a handheld mixer.