Case wlh Doc 674 Filed 06/28/16 Entered 06/28/16 09:23:29 Desc Main Document Page 1 of 13

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1 Document Page 1 of 13 IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION IN RE: CLAYTON GENERAL, INC., f/k/a Southern Regional Health System, Inc., d/b/a Southern Regional Medical Center, et al., Debtors. CHAPTER 11 Jointly Administered Under CASE NO wlh MOTION SEEKING ENTRY OF AN ORDER APPROVING AGREEMENT BETWEEN DEBTORS AND GEORGIA SELF-INSURERS GUARANTY TRUST FUND REGARDING WORKERS COMPENSATION CLAIMS COME NOW, Clayton General, Inc. f/k/a Southern Regional Health System, Inc. d/b/a Southern Regional Medical Center ( Clayton General ; Clayton General Group, Inc. f/k/a Southern Crescent Physicians Group, Inc.; Clayton General Real Estate, Inc. f/k/a Southern Crescent Real Estate, Inc.; Clayton General ASC, Inc. f/k/a Southern Regional Ambulatory Surgery, Inc.; Southlake ASC, LLLP f/k/a Southlake Ambulatory Surgery Center, L.L.L.P. d/b/a Mount Zion Surgery Center a/k/a Spivey Station Surgery Center; and Clayton General Services, Inc. f/k/a Southern Regional Medical Services, Inc., debtors and debtors-in-possession (collectively, the Debtors in the above-styled jointly administered case (the Case, by and through the undersigned counsel, and hereby seek authority pursuant to Section 363(b(1 of Title 11 of the United States Code, 11 U.S.C. 101 et seq. as amended (the Bankruptcy Code, to enter into the Agreement attached hereto as Exhibit A (the Agreement, by and between Clayton General and the Georgia Self-Insurers Guaranty Trust Fund (the Fund. In support of this Motion, the Debtors respectfully represent as follows:

2 Document Page 2 of 13 Relief Requested 1. By this Motion, the Debtors request entry of an order approving the Agreement attached hereto as Exhibit A and such other relief as the Court deems just and proper. Jurisdiction and Venue 2. This Court has jurisdiction of this Motion pursuant to 28 U.S.C. 157 and This is a core proceeding pursuant to 28 U.S.C. 157(b(2. Venue of the Debtors Chapter 11 case and this Motion in this District are proper pursuant to 28 U.S.C and The statutory predicate for the relief sought herein is Section 363(b(1 of the Bankruptcy Code. Background 3. On July 30, 2015 (the Petition Date, the Debtors each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. The Debtors are authorized to operate their businesses as debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. 4. On August 11, 2015, an official committee of unsecured creditors (the Committee was appointed in the Case. No other statutory committee and no trustee or examiner has been appointed. 5. Since the Petition Date, the Debtors have sought and obtained authority to sell substantially all of their assets (the Sale to Prime Healthcare Foundation Southern Regional, LLC ( Prime. The Sale closed on or about February 1,

3 Document Page 3 of Prior to the Petition Date, Clayton General self-insured for workers compensation liability. As such, the Debtors were members of the Fund and were authorized to self-insure the payment of workers compensation benefits to their employees in Georgia The Fund was established by the State of Georgia to provide for the continuation of workers compensation benefits due and unpaid, excluding penalties, fines, and attorneys fees assessed against a participant, when a self-insured employer becomes insolvent. O.C.G.A In the event that a self-insured employer is deemed to be insolvent or in default of its workers compensation obligations, the Guaranty Fund is required by statute to assume all outstanding workers compensation obligations of the employer. O.C.G.A (d. 8. As required by O.C.G.A (b(2, prior to the Petition Date, the Debtors posted a letter of credit dated June 24, 2015 in the amount of $900,000 (the L/C, drawn on Fidelity Bank ( Fidelity, with the Fund as a security deposit in the event that the Debtors defaulted on their workers compensation obligations. The L/C was fully collateralized by a $900,000 Certificate of Deposit posted as security for Fidelity in the event that the L/C was drawn (the CD. 9. The L/C had a maturity date of June 24, On or about May 23, 2016, Fidelity informed the Debtors and the Fund that it would not renew the L/C. The Debtors have been unable to replace the security deposit required by the Fund and Georgia law. Accordingly, the Fund has drawn the 1 On February 1, 2016, the Debtors requested that the Georgia State Board of Workers Compensation cancel the Debtors self-insured status because, as a result of the Sale, the Debtors no longer have any employees. 3

4 Document Page 4 of 13 entire balance of the L/C 2 and now holds such funds as a security deposit (the Security Deposit against the Debtors continued performance of its obligations to pay workers compensation benefits. 10. The Debtors believe that the estimated value of the remaining open workers compensation claims is less than $300,000. If the remaining claims were all resolved and paid today, the Debtors would be entitled to a refund of a substantial portion of the Security Deposit. However, the Debtors do not currently have the financial ability to pay such open claims. 11. Accordingly, the Debtors and the Fund seek authority to enter into the Agreement which provides that: (i the Debtors will seek to resolve the open workers compensation claims within the next ninety (90 days; (ii as claims are settled and such settlements are approved by Georgia State Board of Workers Compensation, the Fund will pay such approved settlements out of the Security Deposit; (iii the Fund will also pay the expenses associated with settlement of the open claims out of the Security Deposit; (iv once the open claims have been settled, the parties will agree on an amount that the Fund will continue to hold as a reserve for future claims, and will return that portion of the Security Deposit not needed for such reserve to the Debtors; and (v once the applicable statutes of limitation have passed with regard to the filing of either new claims or reopening closed claims, the balance of the Security Deposit will be returned to the Debtors. 2 Fidelity paid the full balance of the L/C to the Fund on or about June 20, 2016, and has filed a Motion for Relief from Stay [Docket No. 670] seeking authority to offset the Debtors obligations to Fidelity with regard to the L/C against the CD. The Debtors do not intend to oppose the requested relief. 4

5 Document Page 5 of 13 Basis for Relief 12. The Debtors and the Fund seek authority to enter into the Agreement pursuant to 11 U.S.C. 363(b(1, as this would appear to be an agreement respecting property of the estate that would be outside the ordinary course of business of the Debtors. 13. Section 363(b(1 of the Bankruptcy Code provides in relevant part that [t]he Trustee, after notice and a hearing, may use, sell or lease, other than in the ordinary course of business, property of the estate. The Agreement, and the payment of workers compensation benefits from estate assets, concerns property of the estate. 14. The Debtors believe that approval of the Agreement is in the best interest of the Debtors, their estates and creditors, as it provides a source of funds to satisfy its obligations to pay workers compensation benefits, and sets in place a mechanism whereby the Debtors should be able to recover substantial funds for the benefit of their estates. 15. The alternative to the Agreement is that the Fund will continue to hold the Security Deposit and, as required by Georgia law, will take over administration of the Debtors open claims and seek to resolve same, using the Security Deposit to pay such resolved claims. Accordingly, the Debtors will still not see the benefit of any excess funds in the Security Deposit until the open claims are resolved. However, the Debtors believe that using their current third party administrator and benefits counsel, who are already familiar with the claims, will result in a more expeditious and efficient resolution of the claims. 5

6 Document Page 6 of For the foregoing reasons, the Debtors respectively submit that approval of the Agreement is justified and appropriate and a proper exercise of the Debtors business judgment. Notice 17. Notice of this Motion is being provided to the Office of the United States Trustee, counsel for the Fund, counsel for the Committee, counsel for Fidelity, and those parties identified on the Master Service List maintained in the Case. In light of the nature of the relief requested, the Debtors respectfully request that the Court find that no further notice is necessary. WHEREFORE, based upon the foregoing, the Debtors respectfully request that this Court (a enter an Order approving the Agreement attached hereto as Exhibit A; and (b grant the Debtors such other and further relief as is just and proper. This 28th day of June, Respectfully submitted, SCROGGINS & WILLIAMSON, P.C. One Riverside 4401 Northside Parkway Suite 450 Atlanta, Georgia T: ( F: ( E: rwilliamson@swlawfirm.com aray@swlawfirm.com mlevin@swlawfirm.com /s/ Matthew W. Levin J. ROBERT WILLIAMSON Georgia Bar No ASHLEY REYNOLDS RAY Georgia Bar No MATTHEW W. LEVIN Georgia Bar No Counsel for the Debtors 6

7 Document Page 7 of 13 EXHIBIT A AGREEMENT

8 Document Page 8 of 13 AGREEMENT This is an AGREEMENT between the Georgia Self-Insurers Guaranty Trust Fund (the Fund and Clayton General, Inc. f/k/a Southern Regional Health System, Inc. (the Company. Recitals: A. The Fund was established by the State of Georgia to provide for the continuation of workers compensation benefits due and unpaid, excluding penalties, fines, and attorneys fees assessed against a participant, when a self-insured employer becomes insolvent. O.C.G.A In the event that a self-insured employer is deemed to be insolvent or in default of its workers compensation obligations, the Guaranty Fund is required by statute to assume all outstanding workers compensation obligations of the employer. O.C.G.A (d. B. The Company is a corporation organized under the laws of Georgia, with its principal place of business located in Riverdale, GA. C. As required by O.C.G.A (b(2, the Company posted a letter of credit dated June 24, 2015, in the amount of $900,000 (the L/C, drawn on Fidelity Bank ( Fidelity, with the Fund as a security deposit in the event that the Company defaulted on their workers compensation obligations. The L/C had a maturity date of June 24, D. On July 30, 2015, the Company filed a Chapter 11 petition in the U.S. Bankruptcy Court for the Northern District of Georgia (the Bankruptcy Court. E. On October 30, 2015, the Bankruptcy Court entered a final sale order, allowing the sale of substantially all of the Company s assets to a third-party buyer, who did not assume the workers compensation liabilities as part of the sale transaction. The sale closed on or about February 1, 2016.

9 Document Page 9 of 13 F. On or about February 1, 2016, the Company requested that the Georgia State Board of Workers Compensation (the Board cancel the Company s self-insured status because, as a result of the Sale, the Company no longer has any employees. G. On or about May 23, 2016, Fidelity informed the Company and the Fund that it would not renew the L/C. H. The Company has been unable to replace the security deposit required by the Fund and Georgia law. I. Accordingly, the Fund has drawn the entire balance of the L/C and now holds such funds as a security deposit (the Security Deposit against the Company s continued performance of its obligations to pay workers compensation benefits. J. The Company currently has approximately seven (7 remaining open claims for workers compensation benefits (the Open Claims. NOW THEREFORE, the parties agree as follows: 1. The Fund will hold the Security Deposit in a separate account designated solely for the Company. 2. The Company will continue to administer the Open Claims utilizing its existing third party administrator and defense counsel. The Company will have ninety (90 days from the date of entry of an order by the Bankruptcy Court approving this Agreement to resolve the Open Claims (the Settlement Deadline. 3. If the Company is unable to resolve the Open Claims by the Settlement Deadline, then the Fund may either: (a extend the Settlement Deadline; or (b take over responsibility for administering and settling those Open Claims that have not been resolved as of the Settlement Deadline. 2

10 Document Page 10 of As the remaining Open Claims are settled and such settlements are approved by the Board pursuant to its procedures, such settlements will be paid from the Security Deposit by the Fund. 5. In addition, the Fund will pay the reasonable expenses of settlement of the Open Claims from the Security Deposit, including reasonable expenses for audits, third party administrator fees, and fees incurred by the Company s defense counsel in resolving the Open Claims. 6. After all of the Open Claims have been resolved and paid, and after all expenses chargeable to the Security Deposit have been paid, the Company and the Fund will negotiate an appropriate amount of the Security Deposit that the Fund will be entitled to maintain to secure against any future claims being filed or for existing closed claims being reopened. 7. Any funds remaining in the Security Deposit after the setting of an appropriate reserve as described in paragraph 6, above, will be refunded to the Company s bankruptcy estate. 8. After the applicable statutes of limitations have passed for filing of new claims and/or for reopening of closed claims, any remaining balance in the Security Deposit will be refunded to the Company s bankruptcy estate. 9. Notwithstanding anything contained in this Agreement, the Fund reserves the right to contest the Bankruptcy Court s authority to require disgorgement of any portion of the Security Deposit prior to payment in full of all Open Claims. 10. The persons signing this Agreement are authorized to do so. The Agreement will take effect on the date the Bankruptcy Court enters an order approving this Agreement. 11. This Agreement, and the documents referred to herein, contain the entire understanding of the parties with respect to the subject matter hereof and there have been no 3

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13 Document Page 13 of 13 CERTIFICATE OF SERVICE This is to certify that on this date I served a true and correct copy of the within and foregoing Motion Seeking Entry of an Order Approving Agreement Between Debtors and Georgia Self-Insurers Guaranty Trust Fund Regarding Workers Compensation Claims by causing same to be deposited in the United States Mail with adequate postage affixed thereon and addressed to the following persons: Francis J. Lawall Pepper Hamilton LLP 3000 Two Logan Square Eighteenth and Arch Streets Philadelphia, PA Donald J. Detweiler Pepper Hamilton LLP Hercules Plaza, Suite N. Market Street Wilmington, DE J. Michael Lamberth Lamberth Cifelli Ellis & Nason PA 1117 Perimeter Center West Suite W212 Atlanta, GA Thomas W. Dworschak Office of the United States Trustee 362 Richard Russell Building 75 Spring Street, SW Atlanta, GA John P. Reale Georgia Self-Insurers Guaranty Trust Fund P.O. Box 7159 Atlanta, GA A. Christian Wilson Simpson, Uchitel &Wilson, L.L.P. One Securities Centre, Suite Piedmont Road, N.E. Atlanta, GA This 28th day of June, Respectfully submitted, SCROGGINS & WILLIAMSON, P.C. One Riverside 4401 Northside Parkway Suite 450 Atlanta, Georgia Telephone: ( Telecopier: ( rwilliamson@swlawfirm.com aray@swlawfirm.com mlevin@swlawfirm.com /s/ Matthew W. Levin J. ROBERT WILLIAMSON Georgia Bar No ASHLEY REYNOLDS RAY Georgia Bar No MATTHEW W. LEVIN Georgia Bar No Counsel for the Debtors