Case 8:10-bk-16743-TA
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RON BENDER (SBN 143364) TODD M. ARNOLD (SBN 221868) LEVENE, NEALE, BENDER, YOO & BRILL L.L.P. 10250 Constellation Boulevard, Suite 1700 Los Angeles, California 90067 Telephone: (310) 229-1234; Facsimile: (310) 229-1244 Email: rb@[Link]; tma@[Link] Attorneys for the Estate Representative
6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Debtor. __________________________________ Affects Both Debtors Affects WESTCLIFF MEDICAL LABORATORIES, INC. only Affects BIOLABS, INC. only Debtor. __________________________________ BIOLABS, INC., In re: WESTCLIFF MEDICAL LABORATORIES, INC., Lead Case No. 8:10-bk-16743-TA Substantively Consolidated with Case No. 8:10bk-16746-TA Chapter 11 Cases DEBTORS SECOND POSTCONFIRMATION STATUS REPORT Status Conference Hearing: Date: September 5, 2012 Time: 10:00 a.m. Place: Courtroom 5B 411 West Fourth Street Santa Ana, CA 92701-4593 UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA (SANTA ANA DIVISION)
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TO
THE
HONORABLE
THEODOR
C.
ALBERT,
UNITED
STATES
BANKRUPTCY JUDGE: Westcliff Medical Laboratories, Inc. and BioLabs, Inc., the former Chapter 11 debtors and debtors in possession (collectively, the Debtors), acting by and through Mathew Pakkala, the
5 6 7 8 9 10 11 12 holder of an allowed claim of a specific priority and amount against one of the Debtors will 13 14 15 16 17 18 19 the Plan confirmation order (unless there was a stay in effect with the order which did not occur). 20 21 22 23 24 25 26 27 authority to pay his fees and expenses, the fees and expenses of any additional employees whom 28 The Court entered the Plan confirmation order on April 2, 2012, which means that the Effective Date occurred on April 17, 2012. Under the Plan, Matthew Pakkala (who previously served as the Debtors CRO) has been appointed as the representative of the Debtors bankruptcy estates (the Estate Representative) for purposes of administering the Plan. Also under the Plan, a reserve (the Administrative Reserve Fund) of $250,000 was established out of which the Estate Representative has the receive the identical treatment under the Plan as the holder of an allowed claim with the same priority and amount against the other Debtor, and duplicative claims filed against both estates will automatically be treated as one single claim against the substantively consolidated Debtor. The Plan provided that the Effective Date of the Plan (the Effective Date) would be the first business day which is at least fifteen days following the date the Bankruptcy Court entered Estate Representative for these chapter 11 bankruptcy estates, hereby file this Second PostConfirmation Status Report. At a hearing held on February 8, 2012, the Court confirmed the Debtors First Amended Chapter 11 Liquidating Plan of Reorganization (Plan). Under the Plan, the two Debtors are being treated as one consolidated legal entity as there was no practical way to separately allocate the assets (comprised almost entirely of cash) of the two estates between them. As a result, the
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the Estate Representative determines are necessary and appropriate to enable him to carry out his duties, the fees and expenses of professionals incurred after the Effective Date which the Estate Representative determines are necessary and appropriate to enable him to continue with the administration of the Debtors estates and ultimately to close out the Debtors Chapter 11 cases
5 6 7 8 9 10 11 12 incurred in resolving any outstanding disputed claims). 13 14 15 16 17 18 19 Under the Plan, all of the funds in this estate remaining after (1) all allowed secured 20 21 22 23 24 25 26 27 account the 10% distribution received by holders of class 4 allowed claims as described 28 claims, all allowed administrative claims, all allowed priority tax claims, and all allowed priority (non-tax) claims have been paid in full; (2) the Administrative Reserve Fund has been funded; and (3) each holder of a class 4 allowed claim has received payment equal to 10% of the amount of their class 4 allowed claim are to be distributed to holders of class 4 allowed claims and to the Senior Lenders on account of their class 5 allowed claim on a pro rata basis based upon the remaining allowed amounts of their respective class 4 and class 5 allowed claims after taking into The Plan created two classes of general unsecured creditors resulting from a global settlement that was reached during the Debtors bankruptcy cases with the Debtors Senior Lenders. The deficiency claim of the Debtors Senior Lenders (in the amount of $7,675,801.66) was classified as the class 5 claim, while all other general unsecured claims are classified as class 4 claims. through the entry of final decrees. The Plan provides for the initial distribution to general unsecured creditors (defined as class 4 under the Plan) to be made within thirty days following the entry of a Court order resolving the final remaining disputed claim (unless the Estate Representative obtains an order of the Court following notice and a hearing authorizing the Estate Representative to make an interim distribution to holders of class 4 allowed claims because of the time delay that is expected to be
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immediately above. Under the Plan, the Debtors estimated that there would be a total of approximately $13,087,870 of class 4 allowed claims, and the Debtors estimated that holders of class 4 allowed claims would receive a distribution equal to approximately 35.75% of the amount of their class 4
5 6 7 8 9 10 11 12 Claims, which may result in no allowed claim against the Debtors or which may be satisfied in 13 14 15 16 17 18 19 15, 2012, the Estate Representative is holding a total of approximately $7 million of Estate 20 21 22 23 24 25 26 27 currently a total of approximately $6.7 million of remaining Estate Funds (Remaining Estate 28 Funds, after having paid all allowed secured claims, all allowed administrative claims (subject to that set forth below), all allowed priority tax claims, and all allowed priority (non-tax) claims in full, with the exception of the final fees and expenses of the professionals employed in these cases which were allowed by the Court at a hearing held on August 1, 2012 in the total aggregate amount of $302,301.55. This $302,301.55 has now been paid and when this sum is deducted from the approximately $7 million of Estate Funds existing as of August 15, 2012, there are full by insurance proceeds), the Debtors have now completed the objections to claims process, meaning that there are no longer any remaining disputed claims (other than the one outstanding claim identified immediately above). However, the Debtors still have a number of outstanding avoidance causes of action and pending litigation matters which prevent the Estate Representative from making a final distribution to unsecured creditors and closing out these cases. As of August allowed claims before taking into account any avoidance action or litigation recoveries. Under the Plan, the Debtors estimated that the class 5 allowed deficiency claim of the Senior Lenders would be $7,675,801.66, and the Debtors estimated that the Senior Lenders would receive a distribution equal to approximately 28.6% of the amount of their class 5 allowed claims before taking into account any avoidance action or litigation recoveries. With the exception of one outstanding state court tort related litigation claim (the Tort
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Funds). A new issue arose subsequent to the Plan being confirmed which has had a substantially positive effect for unsecured creditors. The claims chart used by the Debtors to estimate the distribution to creditors assumed an allowed class 4 claim in favor of Parthenon (an insider of the
5 6 7 8 9 10 11 12 passed. The Committee filed an objection to the Parthenon motion. A hearing was held on April 13 14 15 16 17 18 19 negotiations between Parthenon, the Post-Confirmation Committee (which had just recently been 20 21 22 23 24 25 26 27 reduce its class 4 allowed claim amount to $150,000 will have a substantially positive impact 28 formed or was in the process of being formed) and the Estate Representative, the parties agreed that Parthenon would have an allowed class 4 claim in the amount of $150,000, which was subsequently approved by the Court. Since the estimated percentage distributions to holders of class 4 allowed claims and to the Senior Lenders on account of their class 5 allowed claim were based upon the assumption of Parthenon having an allowed class 4 claim of $1,684,349.39, the agreement with Parthenon to 25, 2012 with respect to the Parthenon motion at which the Court denied Parthenons request to have the Parthenon Claim be deemed allowed, but the Court did grant Parthenon leave for authority to file a proof of claim on account of the Parthenon Claim. Parthenon did proceed to file a timely proof of claim on May 16, 2012 in which Parthenon asserted a non-priority general unsecured claim in the amount of $1,684,349.39. After extensive Debtors) in the amount of $1,684,349.39 (the Parthenon Claim). The Debtors had
inadvertently scheduled the Parthenon Claim in the Debtors bankruptcy schedules filed at the commencement of their Chapter 11 cases as a disputed claim, which is something the Debtors only realized post-confirmation and brought to the parties attention. Parthenon proceeded to file a motion with the Court seeking allowance of the Parthenon Claim or for authority to file a proof of claim for the Parthenon Claim notwithstanding the fact that the claims bar date had already
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upon the recovery for the Debtors other unsecured creditors. The analysis of that impact is set forth below. However, when the Plan was formulated and the Administrative Reserve Fund amount was established at $250,000, that was done without taking into account the fees that were
5 6 7 8 9 10 11 12 issue which further reduced the Administrative Reserve Fund unexpectedly. 13 14 15 16 17 18 19 complete the administration of this estate. The Estate Representative has therefore filed a motion 20 21 22 23 24 25 26 27 With a current Remaining Estate Funds of approximately $6.7 million, a total of 28 with the Court seeking Court authority to increase the amount of the Administrative Reserve Fund by $150,000, which really is only replenishing the Administrative Reserve Fund for the fees and expenses incurred relating to the Parthenon Claim issue (which serve to substantially benefit general unsecured creditors) and to account for the timing issue related to the claims objection process which has an economically neutral impact upon general unsecured creditors. The hearing on that motion will be held concurrently with the second post-confirmation status conference. objections efforts of the Estate Representative and the Debtors bankruptcy counsel have been extremely effective, resulting in reducing the total class 4 allowed claims to $11,442,508, which is a substantial reduction from the $13,087,870 total estimated under the Plan. As of August 15, 2012, there is a total of approximately $123,000 remaining in the Administrative Reserve Fund, which is likely not sufficient to enable the Estate Representative to The claims subsequently incurred by the Debtors counsel, the Committees counsel and the Estate Representative relating to the Parthenon claim issue. Moreover, solely as a result of the timing of matters, much more of the work done by the Debtors counsel relating to claims objections was done following the Plan Effective Date than was projected. In the Plan, the Debtors estimated that their bankruptcy counsels fees would be $250,000 and they ended up being approximately $190,000. However, this approximately $60,000 discrepancy was solely the result of a timing
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$11,442,508 of class 4 allowed claims and the class 5 allowed claim of the Senior Lenders being in the amount of $7,675,801.66, before taking into account the payment of remaining UST quarterly fees (which will reduce slightly the ultimate percentage recovery for unsecured creditors) and without including any avoidance action or litigation recoveries (which will increase
5 6 7 8 9 10 11 12 under the Plan). The actual recovery to be received by holders of class 4 allowed claims and to 13 14 15 16 17 18 19 authority to distribute up to $6.0 million of the approximately $6.7 million of Remaining Estate 20 21 22 23 24 25 26 27 approximately $4 million to holders of class 4 allowed claims on a pro rata basis. 28 Funds at this time to holders of class 4 allowed claims and to the Senior Lenders on account of their class 5 allowed claim. Based upon a total of $11,442,508 of class 4 allowed claims and $7,675,801 of class 5 allowed claims, and after taking into account the initial 10% recovery that holders of class 4 allowed claims are entitled to receive under the Plan, the Estate Representative would be distributing a total of approximately $2 million to the Senior Lenders on account of their class 5 allowed claim, and the Estate Representative would be distributing a total of the Senior Lenders on account of their class 5 allowed claim is expected to be even higher because there will be litigation recoveries to be distributed (since there have already been a number of settlements) and there may be a remaining balance in the Administrative Reserve Fund. In the motion the Estate Representative filed, the Estate Representative is seeking Court the ultimate recovery for unsecured creditors), the Estate Representative now estimates that after increasing the amount of the Administrative Reserve Fund (as discussed above), holders of class 4 allowed claims will receive a total distribution equal to approximately 38.2% (which is a substantial increase from the approximately 35.75% estimated under the Plan), and the Senior Lenders on account of their class 5 allowed claim will receive a total distribution equal to approximately 31.2% (which is a substantial increase from the approximately 28.6% estimated
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The Estate Representative estimates that this will result in an immediate distribution of approximately 34% to holders of class 4 allowed claims and an immediate distribution of approximately 27% to the Senior Lenders on account of their class 5 allowed claim. Only holders of class 4 allowed claim will receive an immediate distribution, which means that the
5 6 7 8 9 10 11 12 along with the net preference action recoveries and other litigation recoveries, and obtain a final 13 14 15 16 17 18 19 By: 20 21 22 23 24 25 26 27 28 /s/ Ron Bender Ron Bender Todd M. Arnold Attorneys for Estate Representative decree closing these estates after all remaining litigation matters have been resolved and the disputed Tort Claim has been liquidated, which the Estate Representative currently estimates will likely be towards the end of 2012 or the early part of 2013. Dated: August 29, 2012 LEVENE, NEALE, BENDER, YOO & BRILL L.L.P. Tort Claim holder mentioned above and all pending preference action defendants will not receive any immediate distribution (because there is no way for the Estate Representative to know what their ultimate class 4 allowed claim amounts will be, if nay). The Estate Representative will properly reserve for what those distributions would have been if their class 4 allowed claims were allowed as asserted. The Estate Representative will distribute the balance of the Remaining Estate Funds,
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PROOF OF SERVICE OF DOCUMENT
I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business address is: 10250 Constellation Boulevard, Suite 1700, Los Angeles, California 90067 A true and correct copy of the foregoing document entitled (specify): DEBTORS SECOND POST-CONFIRMATION STATUS REPORT will be served or was served (a) on the judge in chambers in the form and manner required by LBR 5005-2(d); and (b) in the manner stated below: 1. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF): Pursuant to controlling General Orders and LBR, the foregoing document will be served by the court via NEF and hyperlink to the document. On (date) August 29, 2012, I checked the CM/ECF docket for this bankruptcy case or adversary proceeding and determined that the following persons are on the Electronic Mail Notice List to receive NEF transmission at the email addresses stated below: Raymond G Alvarado ralvarado@[Link] Todd M Arnold tma@[Link] Phillip Ashman mgolod@[Link], pashman@[Link];bkumamoto@[Link] Richard L Barnett rick@[Link], kelly@[Link] Ron Bender rb@[Link] Eric S Bershatski [Link]@[Link] Brett Bissett [Link]@[Link] Jennifer K Brooks [Link]@[Link] Ronald K Brown rkbgwhw@[Link] Howard Camhi hcamhi@[Link] Donald H Cram dhc@[Link] Jennifer Witherell Crastz jcrastz@[Link] Ryan S Fife [Link]@[Link], [Link]@[Link];docket_la@[Link] Carol J Fogleman mfrost@[Link] Anthony A Friedman aaf@[Link] John-patrick M Fritz jpf@[Link] Jeffrey K Garfinkle bkgroup@[Link], jgarfinkle@[Link];docket@[Link];svanderburgh@[Link] Barry S Glaser bglaser@[Link] Fredric Glass fglass@[Link] Nancy S Goldenberg [Link]@[Link] Chad V Haes chaes@[Link] James C Harman [Link]@[Link] D Edward Hays ehays@[Link], ecfmarshackhays@[Link] Michael J Heyman [Link]@[Link] Jacqueline L James jlj@[Link] Jeanne M Jorgensen jjorgensen@[Link], esorensen@[Link] Jeff D Kahane jkahane@[Link] Andy Kong [Link]@[Link] Alan J Kornfeld akornfeld@[Link], akornfeld@[Link] Rodger M Landau rlandau@[Link], gguidetti@[Link];rmartin-patterson@[Link] Leib M Lerner [Link]@[Link] Matthew A Lesnick matt@[Link] Michael B Lubic [Link]@[Link] Mark J Markus bklawr@[Link], markjmarkus@[Link] Frank F McGinn ffm@[Link] Jennifer Meeker jmeeker@[Link] Elissa Miller emiller@[Link], asokolowski@[Link]
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. June 2012
F [Link]
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Kerry A Moynihan [Link]@[Link], [Link]@[Link];[Link]@[Link] Aram Ordubegian [Link]@[Link] Ernie Zachary Park [Link]@[Link] Richard Park [Link]@[Link] John E Polich [Link]@[Link] Justin E Rawlins jrawlins@[Link], docketla@[Link] Christopher O Rivas crivas@[Link] Martha E Romero Romero@[Link] Lorraine M Sarles [Link]@[Link] Steven J Schwartz sschwartz@[Link], DanningGill@[Link] Benjamin Seigel bseigel@[Link], IFS_filing@[Link] David B Shemano dshemano@[Link] Lindsey L Smith lls@[Link] Philip E Strok pstrok@[Link] Cathy Ta [Link]@[Link], [Link]@[Link];[Link]@[Link] United States Trustee (SA) [Link]@[Link] Howard J Weg hweg@[Link] Sharon Z Weiss [Link]@[Link], [Link]@[Link] Sharon Z Weiss [Link]@[Link], [Link]@[Link] Joseph M Welch jwelch@[Link], jmealey-hatch@[Link];docket@[Link] Johnny White , ecf@[Link];dmannion@[Link] Beth Ann R Young bry@[Link] Service information continued on attached page
2. SERVED BY UNITED STATES MAIL: On (date) August 29, 2012, I served the following persons and/or entities at the last known addresses in this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed envelope in the United States mail, first class, postage prepaid, and addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than 24 hours after the document is filed. Service information continued on attached page 3. SERVED BY PERSONAL DELIVERY, OVERNIGHT MAIL, FACSIMILE TRANSMISSION OR EMAIL (state method for each person or entity served): Pursuant to [Link].P. 5 and/or controlling LBR, on (date) August 29, 2012, I served the following persons and/or entities by personal delivery, overnight mail service, or (for those who consented in writing to such service method), by facsimile transmission and/or email as follows. Listing the judge here constitutes a declaration that personal delivery on, or overnight mail to, the judge will be completed no later than 24 hours after the document is filed. Served by Overnight Mail The Hon. Theodor C. Albert United States Bankruptcy Court 411 West Fourth Street Santa Ana, CA 92701 Service information continued on attached page I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct. August 29, 2012 Date Lourdes Cruz Printed Name /s/ Lourdes Cruz Signature
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. June 2012
F [Link]
