The U.S. Trustee for the Southern District of Texas filed a May 25 expedited motion to convert Dallas-based Steward Health Care’s Chapter 11 bankruptcy case to a Chapter 7 liquidation due to the for-profit health system’s inability to pay around $127 million in administrative claims.
Steward sought Chapter 11 protection May 6, 2024, and has since worked to sell or close its 31 hospitals.
“Proceeding with a contested and expensive confirmation process for a facially unconfirmable plan would only further burden the estate with significant unrecoverable costs,” U.S. Trustee Kevin Epstein said in the 11-page motion, obtained by Becker’s. “The Debtors’ [Steward] estates simply cannot afford this unnecessary financial gamble.”
Mr. Epstein argued that despite early progress in the bankruptcy proceedings, the health system could not pay the administrative claims, which include services that are crucial to facility operations and patient care and post-petition goods.
However, on May 28, Steward and its affiliated entities filed a joint Chapter 11 plan of liquidation that outlined steps to wind the system down. The 179-page plan, also obtained by Becker’s, suggested liquidating all of Steward’s remaining assets through a litigation trust and a plan trust, which would respectively pursue outstanding legal claims for potential recoveries and manage creditor distributions.
Under the proposed plan, the plan trust will provide money Steward owes to its employees, hospitals and any governmental unit entitled to funds, while the litigation trust will go after entities the health system believes wrongly took their money prior to the bankruptcy. Steward stockholders and owners will not receive any funds.
Ralph de la Torre, MD, Steward’s founder and former CEO, along with other former Steward executives, were also excluded from legal protections offered to certain parties in the proposed plan, leaving them open to potential legal action.
Becker’s has reached out to Steward Health Care for comment and will update this story should more information become available.
