OCA plan confirmation denied in light of absolute priority violation

By Caroline Salls

Pittsburgh, Dec. 29 - Confirmation of OCA, Inc.'s plan of reorganization was denied Friday by the U.S. Bankruptcy Court for the Eastern District of Louisiana.

In his order, judge Jerry A. Brown agreed with former president, chief executive officer and chairman Bart Palmisano Sr.'s contention that participation rights offered to equity holders under the plan violate the Bankruptcy Code's absolute priority rule.

Brown said the plan provides for payment in full of the secured creditor, Silver Point, as well as payment, potentially in full over time, to the general unsecured creditors, but the plan does not provide for any interest on the general unsecured claims.

"Thus, their claims are not paid in full," Brown said in his order.

Under the proposed plan, Silver Point was to extend participation rights to the equity holders, provided that Silver Point waived its right to receive up to 15% of the new common stock that it is entitled to receive under the plan in favor of the equity holders in exchange for their agreeing not to raise objections to the plan and to issue a press release supporting the plan.

Although the plan proponents called the stock being offered to equity holders a gift, Palmisano said the plan could not give property to the equity holders before the general unsecured creditors were paid in full.

"This plan, though not confirmable in its present form, does not reflect a hopeless case for reorganization," Brown said in his order.

"This case is less than a year old. If further modifications can be made by the plan proponents so that the plan complies with the absolute priority rule, the court will entertain a future plan by [OCA] or other proponents."

In addition, Brown said if OCA can resolve its differences with the affiliated practices seeking to cancel their business service agreements, it "appears to be a good candidate for reorganization."

According to the order, the company did not obtain enough favorable votes to confirm the plan under bankruptcy law, and thus, it was seeking a "cramdown" of the plan.

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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