U.S. Trustee, Erlanger Raise Numerous Objections To Proposed Auction Of Hutcheson Medical Center

Sunday, October 18, 2015

The U.S. Trustee's Office and Erlanger Health System are both raising numerous objections to a plan by Bankruptcy Trustee Ronald Glass to auction off the financially-failing Hutcheson Medical Center.

The Fort Oglethorpe hospital, that has long served Walker, Catoosa and Dade counties, has laid off a number of additional employees since the auction plan was presented.

A hearing on the proposed auction is set for Wednesday morning in Bankruptcy Court in Rome, Ga.

Assistant U.S. Trustee Martin Ochs said, "If the nursing home assets are sold, but there is not a sale of the hospital facility without sufficient funds reserved from the sale proceeds, the trustee will be left with inadequate funds to operate the hospital."

Both the U.S. Trustee and Erlanger attorneys noted that the proposed "Auction Notice" has still not been filed with the court or served on interested parties "despite the fact that the Auction Notice will require objections to the assumption and assignment, and cure costs, be filed prior to the Auction."

They said a pro forma asset purchase agreement that the plan says needs to be in a form acceptable to the Trustee and Regions Bank has still not been drawn up.

Trustee Ochs said the bidding procedures provide that, to become a qualified bidder, proposed bidders must, among other things, submit a deposit of no less than $150,000. He said, "The down -payment is not sufficiently high enough to bind a potential purchaser to the transaction as a bidder may perceive this low deposit simply as an option payment."

Noting that only pre-qualified bidders will be allowed at the auction, Trustee Ochs said, "The Trustee has offered no factual or legal basis for excluding other parties in interest and the public from the auction. The exclusion sought by the Trustee is counter to the basic bankruptcy tenet of transparency."

He said the bidding procedures provide that an initial competing bid for the Business Enterprise assets “must be higher than the current price submitted by the Stalking Horse Bidder by an amount acceptable to the Trustee.” He stated, "The lack of a definitive overbid amount denies potential bidders a level playing field. Further, the lack of a defined overbid procedure places too much discretion in the hands of the Trustee."

It was noted that the bidding procedures provide that the determination of the successful bidder(s) “shall be made by the Trustee, with the advice of Guggenheim and in consultation with the Committee and Regions, and must be acceptable to Regions in its sole discretion.”

Trustee Ochs said, "The bidding procedures should specifically provide that Regions will not unreasonably withhold approval."

He also said, "Regions is currently an integral part of the bidding process and therefore, should raise any issues and concerns it has with the process now. To allow it to do so later, without requiring Court approval, vests Regions with too much unfettered independent control over the sale process."

Erlanger attorneys said, "From virtually the inception of these cases, the debtors have been

administratively insolvent and have told this court and parties in interest that they needed to
market their assets for sale. Approximately six months ago, the debtors, with the active participation of the Creditors Committee, employed Guggenheim Securities, LLC to market the assets of the debtors."

They said the court was informed Sept. 1 that the sale of the hospital assets were "well underway," and on Sept. 2 the court was told an offer might be ready by the following Monday.

Erlanger attorneys said, "No such offers materialized."

The Erlanger motion says, "The motion states that the bid procedures 'are intended to generate a fair and open sale process' and then goes on to propose just the opposite - a closed door auction to which only qualified bidders, the Trustee, Regions Bank and the Committee would be able to attend."

Erlanger attorneys said, under the auction plan, Regions Bank would have veto power over accepting the bid and would get all the proceeds of the sale 'less a hold-back for unpaid non-governmental post-petition liabilities. In other words, not a penny of the purchase price for the assets is proposed to go to unsecured creditors."

On Regions getting the proceeds, Erlanger attorneys said Regions does not have any security interest in the land occupied by the hospital. Erlanger says it does through a $20 million loan it made to Hutcheson that was not repaid.

Regarding the plan for the closed auction, Erlanger attorneys said, "The Trustee offers no justification for this deviation from the basic notion of an open and fair public sale that is essential to ensuring the integrity of the bankruptcy process."

The Erlanger motion says, "These debtors operate a public hospital and are owned by a public

authority. This court has emphasized the need in these proceedings for openness, and has been
careful to hold hearings in Rome rather than Atlanta for that reason. Similarly, in the litigation
between Erlanger and the debtors and authority pending before the District Court, Judge
Murphy emphasized the need for openness and ordered public hearings concerning the fate of the 
hospital prior to refusing to enjoin foreclosure. It would be incongruous now, at the conclusion
of these cases where the debtors are seeking buyers for the hospital and its other assets, to
suddenly reverse course and close the auction itself. Consequently, the court should require that
the Trustee conduct the auction openly, with the press and any creditor or other party-in interest
permitted to attend."

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