California Bankruptcy Lawyer Blog

The unsecured creditors of Parkway Hospital Inc.—which filed for Chapter 11 bankruptcy in July 2005, listing assets of $29.3 million and debts of $30 million—are standing by their request to consolidate the bankrupt hospital’s assets with Parkway Hospital Associates. The committee of unsecured creditors claims that to do so would help them recover more of what they are owed and wouldn’t jeopardize the bankrupt hospital's efforts at reorganization.

While the Parkway Hospital Associates owns the hospital and the land it sits on—valued at over $20 million—these assets are not part of the hospital’s bankruptcy estate. The creditors therefore requested that it be able to sue to get PHA “substantively consolidated” with the hospital's bankruptcy estate. Substantive consolidation lets courts merge the assets and liabilities of two or more debtors that are related into a single pool that can be used to pay creditors. Both PHA and Parkway Hospital Inc. have opposed the request. The hospital believes such a move would prevent it from being able to secure the financing it needs to reorganize itself and reemerge from bankruptcy.

Role of a Creditors’ Committee in a Chapter 11 Bankruptcy case:
Creditors' committees can play a major role in chapter 11 cases. The committee is appointed by the U.S. trustee and ordinarily consists of unsecured creditors who hold the seven largest unsecured claims against the debtor. 11 U.S.C. § 1102. Among other things, the committee: consults with the debtor in possession on administration of the case; investigates the debtor's conduct and operation of the business; and participates in formulating a plan. 11 U.S.C. § 1103. A creditors' committee may, with the court's approval, hire an attorney or other professionals to assist in the performance of the committee's duties. A creditors' committee can be an important safeguard to the proper management of the business by the debtor in possession.