US Trustee Warns Hidalgo County EMS “Bleeding Money” in Bankruptcy, Company Explores Sale to Preserve Services – Progress Times
After more than 16 months of bankruptcy, Hidalgo County EMS “is hemorrhaging cash” and “has no reasonable chance of rehabilitation,” according to a petition filed Monday by the United States Office of the Trustee, which is monitoring cases of bankruptcy.
The petition asks a judge to either dismiss the case – leaving the company with no protection from creditors – or convert the Hidalgo County bankruptcy EMS from Chapter 11, which protects a company during a reorganization, Chapter 7, which provides an orderly process for the liquidation of the business.
“The debtor is operating at a loss. There is no evidence to show that the debtor has the capacity to reorganize ”, according to movement. “Based on these facts, the debtor has no reasonable probability of rehabilitation. “
However, the bankruptcy court will almost certainly avoid any action that disrupts the ambulance service.
“Their service is absolutely essential,” Hidalgo County EMS restructuring director said. Richard S. Schmidt of Corpus Christi. “He will not be lost.
Hidalgo County EMS, a private ambulance company that responds to emergency calls in Edinburg, Pharr and other parts of south Texas, filed for bankruptcy in October 2019.
While the company had assets worth $ 12.1 million, Hidalgo County EMS owed creditors nearly $ 6.8 million – and had less than $ 72,000 in the bank, according to a financial report filed in November 2019.
Hidalgo County EMS has hired Schmidt, a retired bankruptcy judge, to serve as director of restructuring. He started working in September.
“We worked as quickly as possible to reorganize it so that the services provided by the company would survive,” Schmidt said.
The coronavirus pandemic and a dispute with the US Small Business Administration over whether the Hidalgo County EMS qualified for a paycheck protection program loan complicated the bankruptcy case.
The Hidalgo County EMS owed the IRS about $ 2.6 million, according to the November 2019 financial report.
The paycheque protection program dispute created another potential liability.
Hidalgo County EMS has secured a nearly $ 2.6 million loan under the Paycheck Protection Program amid a legal battle with the Small Business Administration.
The South Texas District Attorney’s Office, which represents the federal government in the bankruptcy case, has accused Hidalgo County EMS of fraudulently obtaining the loan. Hidalgo County EMS has denied any wrongdoing.
“And there is a legal issue as to the status of the SBA’s debt,” Schmidt said. “We believe this should be forgiven under the PPP program. The SBA doesn’t believe it.
The US attorney’s office filed a petition in August, warning that “the dishonesty of a debtor in possession threatens the integrity of the bankruptcy process.” He accused Hidalgo County EMS owner Kenneth Ponce of self-operation and asked for the appointment of a director to oversee the business.
Hidalgo County EMS also submitted monthly operating reports showing six-figure losses.
“The debtor, who did not file a reorganization plan after more than sixteen months in Chapter 11, suffered an average monthly net loss of -310,796.27 during the months of July 2020 to November 2020 with a flow negative cash flow of -356,849.79 per month during this period, ”according to the petition filed Monday. “Because the debtor hemorrhages cash and thus suffers a substantial and continuing loss and decrease in assets, the debtor has no reasonable chance of recovery. “
When a bankruptcy case stagnates or a company does not submit a reorganization plan, the United States Office of the Trustee may file a motion to convert the case to Chapter 7.
“It’s very typical,” Schmidt said.
IRS debt and uncertainty over the Paycheck Protection Program loan made it difficult to prepare a traditional reorganization plan, Schmidt said. Hidalgo County EMS, however, is working hard to develop a plan to preserve ambulance service.
Options being considered include selling the Hidalgo County EMS, Schmidt said. Several potential buyers have expressed their interest.
If the business is sold, Schmidt said the buyer would be someone experienced in emergency medical services.
“We hope we will have a big announcement in a few weeks of our reorganization plans,” Schmidt said.
A hearing on the motion filed by the Office of the United States Trustee is scheduled for March 26.