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University General Health System Limited Objection Filed

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According to the U.S. Bankruptcy Court docket, the Texas Health and Human Services Commission and the Texas Department of State Health Services’ filed a supplemental limited objection to University General Health System’s emergency motion for interim and final orders (i) authorizing secured post-petition financing on a super priority basis, (ii) granting relief from the automatic stay, (iii) granting related relief and (iv) scheduling a final hearing.

The limited objection explains, “The Debtors’ proposed Final Order provides, in part, that ‘MidCap’s first priority Lien in pre-petition and post-petition Accounts of the Debtors (and proceeds there from) will be senior to and prime any valid lien (if any) asserted by any Governmental Authority or any other creditor with respect to the Accounts of the Debtors’, and that MidCap’s first priority Lien on the Debtors’ Accounts (and proceeds there from) shall be senior to any right of a holder of a claim, including without limitation, any mortgagee, Governmental Authority or landlord, that arose, or is deemed to arise, prior to the Filing Date, of any right of set off, tax lien, tax levy, or to otherwise assert a charge against any such Accounts….The problem with these provisions is twofold: first, this plainly cuts off the right to surcharge the Collateral.”

Court documents continue, “The State agrees with the Court that it is inappropriate to pre-emptively cut off such rights as to third parties at the relative infancy of this case. Should the case convert to a Chapter 7, the Trustee will be saddled with closure costs…including costs associated with the disposition of pharmaceuticals and medical pathology waste. Such medical waste constitutes hazardous materials that are subject to regulation by the Texas Commission on Environmental Quality….Second, there is no authority for the proposition that Medicaid recoupment rights can be primed by liens granted to a debtor-in-possession lender.”

Learn more about this Chapter 11 reorganization.