HIMA San Pablo: Are the Proposed Hospital Sales an Improper Sub Rosa
HIMA San Pablo: Are the Proposed Hospital Sales an Improper Sub Rosa
Plan of Reorganization? HIMA San Pablo is looking to sell what could end up being substantially all of its assets before it runs out of money and while its hospitals remain a going concern.
Three government entities have opposed the court’s approval of the process and conditions proposed by the debtor to govern the sale of such assets. CRIM objected on the grounds that the requirements for a sale under 11 U.S.C. § 363 are not met because, among other reasons, the sale price will not be enough to satisfy in full the claims secured by the properties to be sold (including CRIM’s).
Additionally, CRIM claimed that “to the extent that the 363 Motion contemplates the sale of all of the Debtors properties, it constitutes an impermissible sub rosa plan.” CRIM explained that the sale process contemplated by the debtors provides for the distribution of all proceeds to a secured lender (Island Healthcare) while depriving other stakeholders of the protections of a plan confirmation process.
AAFAF also argued that the debtors proposed what amounts to an impermissible sub rosa plan. According to AAFAF, government entities would be harmed by the debtors’ proposal since, under a plan confirmation process, those government claims entitled to priority would have to be paid in full or otherwise settled consensually. Additionally, a plan confirmation process would allow for the right to vote as well as provide for a disclosure of relevant and necessary information.
However, AAFAF made clear that it does not oppose the sale of the debtors’ assets. Instead, it requested that the court order “that the sale proceeds generated from such sales be distributed pursuant to a liquidating plan, or, alternatively, require that such sale proceeds provide a carve-out and benefit to other creditors and the estate[…].” Are CRIM and AAFAF correct in that the debtors are seeking an improper sub rosa plan?
At this point, it is hard to say, since it is unclear to what extent the debtors’ proposal, if approved, will actually dictate the terms of a future plan (if any). To this end, it will be interesting to see if the debtors oppose AAFAF’s request that the proceeds be distributed pursuant to a liquidating plan and what reasons they set forth if they do.
In any event, the debtors could persuade the court to approve their proposed process and conditions if they are able to establish good business reasons for them and, in any event, that the proposed distributions will be consistent with the Code.
However, to be successful, they will probably have to also show that they are offering procedural protections to interested parties comparable to those available under a plan confirmation process (adequate information in lieu of a disclosure statement, opportunity to object in lieu of voting rights, etc.).
The debtors have to reply to these objections on or before September 18, 2023.