OCA creditors committee asks court to classify former executive's claims as equity investments

By Caroline Salls

Pittsburgh, Jan. 22 - OCA, Inc.'s official committee of unsecured creditors filed a complaint against former executive Bartholomew F. Palmisano Sr., asking that some of Palmisano's claims be recharacterized as equity investments, according to a Monday filing with the U.S. Bankruptcy Court for the Eastern District of Louisiana.

According to the filing, Palmisano filed a $3.2 million promissory note claim on June 1, 2006, which he claimed was based on two promissory notes allegedly in connection with two advances made to OCA by Palmisano.

The committee said at the time Palmisano made the alleged advances to the company and the promissory notes were issued, Palmisano was an officer, director and large shareholder of OCA.

He was chairman of the board of directors and largely controlled the company, the complaint said.

In addition, when the alleged advances were made and the promissory notes issued, the company was in the midst of a series of credit facility defaults and was dependent on accommodations from lenders to be able to use the proceeds of receivables collected and to obtain any borrowing availability under the company's credit facility.

As a result, the committee said at those times, the company's capitalization was insufficient to support a business of OCA's size and nature, and it could not have borrowed a similar amount of money from an informed outside lender on terms similar to those of Palmisano's promissory notes.

According to the committee, other issues pointed to the promissory notes being equity investments, including that, while the promissory notes stated fixed maturity dates, those dates were entirely illusory, and Palmisano waived the right to receive any payment on account of the promissory notes, or to otherwise enforce the promissory notes, until all obligations under the company's senior credit facility were paid in full.

In addition, the committee said the promissory notes were issued with no identified source of payment of either principal or interest, such as a sinking fund or other source, and the company was unable to find an independent source of capital, despite substantial efforts to do so, both before and after the promissory notes were issued.

OCA, a Metairie, La., provider of business services to orthodontic and dental practices, filed for bankruptcy on March 14, 2006. The Chapter 11 case number is 06-10179.

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