In re: ICL Holding Co., Inc.

LifeCare operated 27 long-term acute care hospitals with about 4,500 employees.Hurricane Katrina destroyed three of its facilities. It had $484 million debt; approximately $355 million was secured. Secured lenders wanted to purchase the company outright and offered to credit $320 million of the debt as LifeCare’s only alternative to liquidation under Chapter 7. The secured lender group, LLC2, put funds in escrow to pay legal and accounting fees. LifeCare filed for bankruptcy one day later, obtained permission to sell assets under 11 U.S.C. 363(b)(1), abd marketed its assets to more than 106 potential parties. LLC2 was selected as the successful bidder. The Committee of Unsecured Creditors and U.S. government—neither of which would recover anything through the sale— objected to the transfer as a “veiled foreclosure.” In exchange for the Committee dropping its objections, LLC2 deposited $3.5 million in trust for general unsecured creditors. The Bankruptcy Court approved the sale. Deeming the administrative fee monies escrowed by LLC2 not to be estate property, the court held that the government had no claim to it. The Third Circuit affirmed. Payments by an 11 U.S.C. 363 purchaser (LLC2) need not be distributed according to the Code’s creditor-payment hierarchy where no cash changed hands other than that deposited in escrow for professional fees and paid directly to the unsecured creditors. The payments neither went into nor came out of the bankruptcy estate. View "In re: ICL Holding Co., Inc." on Justia Law