Physiotherapy Holdings pre-packaged plan draws fire from three groups

By Jim Witters

Wilmington, Del., Dec. 13 - Physiotherapy Holdings, Inc.'s pre-packaged Chapter 11 plan drew objections from three parties in Dec. 12 filings with the U.S. Bankruptcy Court for the District of Delaware.

The objecting parties say the plan cannot be confirmed because it is unfair to creditors and fails to meet the criteria outlined in the U.S. bankruptcy code.

Those filing objections include Jefferies LLC, Jefferies Finance LLC, the Royal Bank of Canada and RBC Capital Markets, LLC; Huron Consulting Services LLC; and the U.S. Trustee's Office.

According to court documents, the plan will reduce the Physiotherapy debtors' total funded debt, including interest, to roughly $144 million from $375 million, provide long-term financing and access to incremental funding that will enable the debtors to support their go-forward business needs and establish and fund a litigation trust to consolidate and coordinate the prosecution of claims and causes of action.

The plan confirmation hearing is scheduled for Dec. 17.

Jefferies and RBC objection

The Jefferies and RBC entities say they are not seeking to derail the debtors' efforts to restructure their liabilities, but "the plan contains certain discrete and fundamental infirmities that materially and impermissibly prejudice the rights of the Jefferies and RBC entities and prevent the plan from being confirmed unless such infirmities are remedied."

Those infirmities include:

• The Jefferies and RBC entities hold class 8 non-subordinated contribution and reimbursement claims. The debtors contend that these claims are unimpaired and that the Jefferies and RBC entities are presumed to have accepted the plan.

"That contention is simply incorrect. The plan significantly alters the legal, equitable and contractual rights of class 8 claimants by substituting a new obligor on the claims and dictating a new payment waterfall and payment restrictions including limiting recoveries to rights of setoff or recoupment against or other recoveries obtained by the new obligor."

As a matter of law, class 8 claims are "impaired" and the holders of class 8 claims may not be deemed to have accepted the plan;

• The plan's release, exculpation and discharge provisions are overly broad and impermissible under third circuit law; and

• Even if the Jefferies and RBC entities were deemed to hold class 7 subordinated claims and were thus deemed to have rejected the plan, the plan would not satisfy the cramdown provisions of the code.

No distributions are proposed to be made on account of class 7 claims, yet the plan leaves inter-company interests unimpaired and may reinstate such interests in violation of the absolute priority rule.

Trustee objection

Roberta A. DeAngelis, the U.S. Trustee for Region 3, says the plan is not confirmable because it contains certain debtor releases and nonconsensual third-party releases that are contrary to law.

Specifically, "future personal injury claimants, who may have been injured from the services provided at the debtors' facilities prior to the petition date and may assert that claim post-confirmation, do not appear to have effective redress for their claims.

Huron objection

The plan is structured to deprive Huron of numerous rights, including its contractual right to seek indemnification and its right to assert claims against non-debtor third parties, Huron says.

"The plan does all of this without even providing Huron with the opportunity to vote, as the debtors assert that Huron's rights are unimpaired by the plan. This is an astonishing position, given the extent to which the plan subordinates, dilutes and extinguishes Huron's rights."

In addition to the reasons outlined by the U.S. Trustee, Huron says the plan cannot be confirmed because it:

• Discriminates unfairly against similarly situated creditors;

• Attempts to sever indemnity obligations from contracts that are being assumed by the debtors; and

• Attempts to assume contracts that cannot be assumed over Huron's objection.

Physiotherapy, an Exton, Pa.-based provider of outpatient rehabilitation services, filed for bankruptcy on Nov. 12. Its Chapter 11 case number is 13-12965.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.