A malpractice suit has forced the estate to admit that it’s got only $8.25 million (as we surmised a few weeks ago). That’s $69 million of accounts receivable that are older than 90 days and might as well be considered evaporated.
But the kicker comes when the filing says Heller has budgeted for only $5 million in priority claims. “Thus, cash is very tight in the wind-down plan,” states the declaration by Heller’s financial advisor, who is charged with coming up with a liquidation plan that will determine what assets are recoverable (read bank mistake and partner pockets) and what goes to creditors (.pdf).
A clue to the reader: Priority claims = claims that get paid first = employees’ money.
That sinking feeling, after the jump.
Five million is a far cry from what Heller’s employees, or at least their lawyers, think they are owed. LA boutique Blum Collins filed a group claim (.pdf) for $32 million for the employees in late March.
Bankruptcy law’s way of being fair to employees of bankrupt companies is to guarantee some money to employees, regardless of the distribution to other creditors. Thus, “priority claims.” The maximum for each employee is $10,950.
So, of that $32 million, at least $9.4 million are employee “priority claims.” Each of the 861 employees Heller left by the wayside back in October is owed at least $10,950 because they weren’t paid accrued vacation or given 60 days of notice.
Now, how do we get $5 million from $9.5 million? That’ll be a mystery until more information is forthcoming from Heller’s financial adviser, but it appears Heller’s not going to admit it owes the WARN money and the penalties associated with not paying it, which might be easier to fight than the accrued vacation claims. Double blow: Only vacation accrued in the 180 days prior to the bankruptcy are considered priority.
Keep in mind, this filing was only made because Heller’s creditors had to convince Judge Dennis Montali the estate is financially strapped already, so he should not lift a stay on a $4 million malpractice suit filed against Heller and a former partner in February.
The financial adviser’s declaration was Montali’s first taste of how bad things are looking. He denied the motion to lift the stay, hinted the two parties would both be better off if they figured out a settlement, and told the lawyer for the malpractice plaintiff:
“Unfortunately in bankruptcy land, occasionally when predictions of bad results are made, they are only precursors of worse results.”
— Amanda Royal