By The Star Staff
The Puerto Rico government, along with the U.S. government’s Department of Health and Human Services and Centers for Medicare & Medicaid Services, are on record as opposing the motion for sale of Grupo HIMA’s hospital assets.
On Aug. 23, HIMA asked for a court order authorizing it to designate any so-called stalking horse bidders for its Fajardo facilities or any of the assets other than the Fajardo assets, and to schedule an auction and the sale hearing. HIMA filed for bankruptcy in mid-August to restructure more than $400 million in debt.
The Fiscal Agency and Financial Advisory Authority, on behalf of the island Treasury Department, the Puerto Rico State Insurance Fund and the commonwealth Department of Labor and Human Resources, objected to the sale.
While the government supports the sale of the hospitals as a going concern to entities that will continue to operate them, it noted that the hospitals owe the entities some $70 million.
The government entities complained that according to a motion submitted by HIMA, the hospital group plans to distribute all of the sale proceeds generated from the sale of the assets, at the closing of each such sale, solely to one creditor, Island Healthcare LLC.
“The distribution of all of the proceeds from substantially all of the Debtors’ assets, upon the closing of such sale and prior to and outside of the confirmation of a plan, solely to Island Healthcare, constitutes a sub rosa plan,” the government said.
A sub rosa plan is a transaction entered outside of a bankruptcy case that acts as a de facto Chapter 11 plan of reorganization and evades requirements of the Bankruptcy Code.
If the distribution of the sale proceeds, as contemplated under the sale motion, and is approved as proposed by HIMA, then there would be no remaining material assets or proceeds to distribute to any other creditor after the closing of all such sales.
“In other words, if all of the sale proceeds are distributed to Island Healthcare at this stage, there would be no remaining assets left to distribute through a plan and, thus, no liquidating plan would be subsequently filed. Thus, after completing these sales and distributing the proceeds to Island Healthcare, the debtors would likely need to seek to convert to a chapter 7 proceeding or dismiss these cases and these bankruptcy cases would not have yielded any payment to any other creditor,” the government said.
HIMA’s intent is evident, the government said, because it is trying to expedite the case but has not provided milestones establishing when it will present a disclosure statement or plan. The government “submits that the court should approve the sale of the debtors’ assets to the successful purchasers under the bidding procedures approved by this Court.”
“Nonetheless, the Court should not authorize, outside of a plan confirmation process, the distribution to Island Healthcare of all of the sale proceeds as doing so would be tantamount to a sub rosa plan,” the government said.
The U.S. government opposes the sale because under HIMA’s proposal, its Medicare provider agreements will be transferred to the successor free of liability, in violation of bankruptcy law.
“The United States does not oppose a fair and robust sale, as long as that sale complies with Medicare statutes, regulations and policy,” the U.S. government said.