Orion Healthcorp – Court Confirms Third Amended Joint Plan of Liquidation

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February 26, 2019 – The Court hearing the Orion Healthcorp case confirmed the Debtors' Third Amended Joint Plan of Liquidation [Docket No. 701]. On March 16, 2018, Orion Healthcare and 20 affiliated Debtors filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Eastern District of New York, lead case number 18-71748.

In a Memorandum of Law filed in support of confirmation of the Plan [Docket No. 686], the Debtors' counsel provided the following overview of the Plan and the circumstances leading to the Debtors' Chapter 11 filing, " The Debtors believe that the Plan, which incorporates a settlement reached among the Debtors, Secured Lenders and Committee and provides for the creation of a liquidating trust for the benefit of the Debtors’ creditors, will allow for a prompt resolution of the Debtors’ Chapter 11 Cases and will achieve the best possible result for creditors and other interested parties. 

As discussed in detail in the Disclosure Statement and in various documents filed with the Bankruptcy Court, the Debtors are the victims of a large, complex, and brazen fraud at the hands of their former management and others. After acquiring several businesses, the Debtors’ former CEO, Parmjit ‘Paul’ Parmar (‘Parmar’) took Constellation Healthcare Technologies, Inc. (‘CHT’), the direct or indirect parent company of the Debtors (and itself a Debtor), public on the London Stock Exchange’s Alternative Investments Market (the ‘AIM’) and then proceeded to raise equity for additional acquisitions, some of which are believed to be fictitious. Parmar then took CHT off the AIM, by securing $82.5 million of cash (as equity) and causing the Initial Debtors to borrow approximately $130 million in secured debt, the majority of which is believed to have been paid to Parmar (as a shareholder, through entities under his control) (the ‘Go-Private Transaction’).  The Debtors borrowed such funds based upon financials subsequently discovered by the Debtors’ new management and their professionals to be largely fictitious and involving numerous sham companies and fabricated transactions, revenues, and customers. As a result, the Debtors became overleveraged and unable to service their debt obligations. The Debtors’ financial distress was compounded by their lack of integration between business lines and the abrupt resignations of Parmar and other members of the Debtors’ management when their fraudulent activities were discovered leaving the Debtors without any leadership with institutional knowledge to operate the Debtors’ businesses. Therefore, on the Petition Date and NYNM Petition Date, respectively, the Debtors commenced these Chapter 11 Cases to (i) market and sell their assets, (ii) wind down their businesses, and (iii) pursue claims against the individuals and entities that contributed to the Debtors’ demise for the benefit of all their creditors."

Key Events 

Asset Sales. After marketing their assets and engaging in a competitive auction, the Debtors sold substantially all of their assets related to their revenue cycle management business line to Medical Transcription Billing, Corp. (“MTBC”) for $12.6mn on July 1, 2018.  Shortly thereafter, NYNM Management sold substantially all of its assets related to its independent physician association business to HealthTek Solutions, LLC (“HealthTek”) for $16.5mn. The proceeds of the sales to MTBC and HealthTek were used, in part, to satisfy the Debtors’ DIP Loan and administrative expenses.

Adversary proceedings. During the Chapter 11 Cases, the Debtors also commenced three (3) adversary proceedings against numerous parties seeking damages in excess of $150.0mn. In particular, the Debtors brought two (2) adversary proceedings against prior shareholders, Parmar and others seeking to recover proceeds or damages caused by fraudulent transfers and under various state law claims. Additionally, the Debtors commenced an action against Robinson Brog Leinwand Greene Genovese & Gluck, P.C., the Debtors’ former counsel, for, among other causes of action, legal malpractice, breach of fiduciary duties and unjust enrichment. All three adversary proceedings are in the early stages of litigation. The Debtors believe there are additional significant causes of actions to pursue against individuals and entities related to the fraud perpetuated by the Debtors’ former management.

Standing Motion Settlement. As of the Petition Date, the outstanding principal balance owed by the Debtors to their secured lenders was not less than $157.6mn. Pursuant to the Debtors’ final DIP Order, the Debtors’ creditors committee (the “Committee”) was afforded a period to review and challenge the Secured Lenders’ claims and prepetition liens. Following an investigation of potential claims that could be asserted against the secured lenders, the Debtors, secured lenders and Committee reached a resolution that they believe is in the best interests of the Estates and has been incorporated into the Plan (the “Standing Motion Settlement”). Specifically, pursuant to the Plan and the Standing Motion Settlement, the Debtors, secured lenders and Committee have agreed that the Secured Lenders will be allowed a Secured Claim in the amount of $50.0mn (the “Allowed Secured Lender Claim”) and will receive the net sale proceeds and the first distributions from the liquidating trust up to $50.0mn on account of the Allowed Secured Lender Claim. Additionally, the Debtors, Secured Lenders and Committee have agreed that the secured lenders will be allowed a General Unsecured Claim in the amount of $107,612,342.74 (the “Secured Lender Deficiency Claim”) and will receive a  pro rata share of the Liquidating Trust Distributable Cash with the other holders of general unsecured claims. 

The following is a summary of claims, classes, voting rights and projected recoveries [Please note that figures relating to the allowed amount of claims, although representative, is in respect of one of the 14 Debtors, "CHT," with specifics as to other Debtors available in the Disclosure Statement]:
 
  • Class 1 ("Other Priority Claims") is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated allowed amount of claims is $111,487.88 and estimated recovery is 100%. 
  • Class 2 ("Secured Tax Claims") is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated allowed amount of claims is unknown and estimated recovery is 100%. 
  • Class 3 ("Allowed Secured Lender Claim”) is impaired and entitled to vote on the Plan. The estimated allowed amount of claims is $50mn and estimated recovery is TBD.
  • Class 4 ("Other Secured Claims”) is impaired and entitled to vote on the Plan. The estimated allowed amount of claims is $17,156,070.40 and estimated recovery is TBD.
  • Class 5 ("General Unsecured Claims”) is impaired and entitled to vote on the Plan. The estimated allowed amount of claims is $271,911,191.22 and estimated recovery is TBD.
  • Class 6 ("Subordinated Claims”) is impaired and entitled to vote on the Plan. The estimated allowed amount of claims is unknown and estimated recovery is TBD.
  • Class 7 (“Interests in Orion”) is impaired and not entitled to vote on the Plan. Estimated recovery is 0%. Unless the Interests are held by another Debtor in which case such other Debtor shall, by proposing the Plan, be deemed to accept.    

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