Palm Drive Health Care District is out of bankruptcy court after a judge approved its reorganization plan and settlement with a recent administrative claim for $500,000 on June 19.
The plan will schedule payments to creditors, which includes former district employees along with equipment providers and banks.
“It’s a huge weight off of our shoulders to be able to resolve the bankruptcy and help the former employees and merchants as well become somewhat whole again,” Board President Dennis Colthurst said.
Colthurst said he joined the board in the midst of the bankruptcy, which is the second the district has gone through. He said he had “great ambition” to resolve the case as a result.
“It’s a positive occurrence in the life cycle of the district. It’s something that took a long time to come together, and we’re just happy that we’re able to pay off those people who have been waiting for their money,” Palm Drive attorney Bill Arnone said.
The court gave verbal approval, Arnone said, with a written approval to be submitted shortly.
Palm Drive Executive Director Alanna Brogan was at the court hearing on behalf of the district.
“I think the judge was very happy with the resolution achieved by the district related to the SWMC bankruptcy claim. Once it was presented, there were very few questions. He did ask if there were any objections, and there were none. He approved the plan shortly thereafter. It took about 15 minutes to go through the whole process. The past employees in the audience were pleased. I was elated,” Brogan said.
Claimants were broken down into six categories that will be paid out percentages of claims on timelines established in the plan.
“The board has worked hard to achieve this and is happy to make payments to our creditors. Money has been saved and continues to be saved to make payments to the creditors,” Brogan said. “Our credit rating will improve as a result of being out of bankruptcy.”
Arnone said that the terms and timetable for selling the hospital to AAMG are not changed by the court case.
AAMG has an exclusive option to purchase the hospital for $5.2 million after Measure A was passed by voters on March 5.
The bankruptcy plan approval will help the district’s case refinancing bonds, however, Arnone said.
“When you’re trying to pay off one set of bonds with a new set of bonds, the lenders that you’re going after want to know the borrower, in this case the district, is stable, and getting out of bankruptcy is a good indication that they’re stable,” Arnone said. “The consequence of that, hopefully, will be that it will save the taxpayers money over time.”
Sonoma West Medical Center (SWMC) had filed Chapter 7 bankruptcy prior to the district case that was recently approved. The trustee appointed by the court to oversee this case filed a claim that was settled to cover expenses owed to creditors of SWMC.
“The bankruptcy trustee was asserting that when SWMC Inc. stopped being the manager of the hospital, and the manager of the hospital switched to a different company, AAMG, in the course of that transition, there were assets that should’ve been taken by SWMC Inc. or paid to SWMC Inc. that weren’t,” Arnone said.
Arnone said there were accounts receivable the claimant said were not credited to SWMC as a result, as well as inventory that remained after SWMC left.
The settlement pays $400,000 to the claimant with an additional $100,000 to be paid on the condition of selling Sonoma Specialty Hospital to AAMG. This money will then be paid out by the claimant according to SWMC’s plan of reorganization.
“It was a good settlement,” Colthurst said.
Now that the district has the plan in place and the bond issue is moving ahead, the change of ownership to AAMG looks to have more solid footing. Though not complete, board members are thinking about what the next steps are once the board is no longer in the health care business.
“We have to define the focus of the district,” Colthurst said. “I think there are several ways to go but I think it’s going to take a lot of research.”