HDL’s headquarters on Fifth Street downtown. Photo by Burl Rolett.
Health Diagnostic Laboratory has been granted enough financial fuel to continue operating at least another month. But both its lender and its landlord warn that the troubled lab company is on a path that could end in bankruptcy liquidation.
During a court hearing Tuesday, a federal bankruptcy judge approved HDL’s request to continue using its cash collateral to fund its day-to-day operations, at least until a hearing on July 23.
That wasn’t the only good news for the downtown blood testing firm, which is operating $2.3 million ahead of its budget for the month, an HDL attorney said Tuesday.
That surplus, however, does not appear to have eased the concerns of stakeholders, two of which contended at Tuesday’s hearing that HDL may be moving toward administrative insolvency.
HDL filed for Chapter 11 bankruptcy June 7 and has been operating using the cash held by its largest lender, BB&T, as it attempts to secure longer-term debtor-in-possession (DIP) financing. That cash has been held by BB&T as collateral for the credit that HDL had with the bank.
On Monday, HDL made its first move toward a possible sale of the company in an attempt to wrap up its Chapter 11 case as quickly as possible. If that process is approved by the judge, court documents state that a sale would conclude by the end of September.
But in order to continue operating until then, the company needs to either secure DIP financing, which it is still attempting to do, or keep operating on cash collateral. And the latter option may become increasingly difficult as BB&T continues to put up a fight.
BB&T has now twice objected to HDL using more cash, arguing the company has a dwindling cash supply with two large payments looming: a $480,000 rent payment, and an $885,000 installment payment as part of its settlement with the federal government.
“The debtors should not be allowed to use BB&T’s cash collateral because the Chapter 11 Cases are likely to be imminently converted to cases under Chapter 7,” the bank’s objection states.
Robert Westermann, an attorney with Hirschler Fleischer working as conflict counsel to help mediate in the case, told Judge Kevin Huennekens on Tuesday that the settlement payment to the government is not due until July 31, and that HDL is in communications with the landlord of its downtown headquarters, BioTech 8 LLC, to resolve rent issues.
“The debtors do not think that Chapter 7 is imminent,” Westermann said.
But Paula Beran, an attorney with Tavenner & Beran representing the landlord, told the judge that her client had been told candidly that HDL does not have enough money to make post-bankruptcy petition payments.
“It seems we are on a slippery slope to administrative insolvency,” Beran said during the hearing.
She said even if HDL is ahead of its budget for the month, it still has not worked out a way to pay its rent. Berran said that the landlord is prepared to continue working with HDL, adding: “I sure hope my mother was wrong when she said no good deed goes unpunished.”
HDL owns a 58.9 percent interest in the Biotech 8 entity. Another unknown party holds the remaining stake in the LLC.
Beran was not available to comment after Tuesday’s hearing.
Westermann said more funds may become available to HDL after the completion of an equipment auction, which closed to bidders on June 26. However, 30 percent of those proceeds will go to BB&T, and the rest will go into an escrow account controlled by the bank.
HDL also gained approval Tuesday to conduct a so-called “2004 examination” of its Texas-based competitor, True Health Diagnostics and an executive from BlueWave Healthcare Consultants, HDL’s former sales contractor that recently sued the company.
The examinations will attempt to reveal whether True Health has interfered with healthcare providers with which HDL has exclusive contracts, and whether the BlueWave executive, Brad Johnson represented True Health at a tradeshow, violating his legal obligations to HDL as a shareholder.
Jason Harbour, an attorney with Hunton & Williams representing HDL, said at Tuesday’s hearing that the timing for the 2004 examination is especially pertinent because True Health has expressed interest in buying HDL. Before the Richmond firm reveals confidential information as part of a sale process, it should know if its concerns are valid, he said.
Both Johnson and True Health filed objections to the examination, but Huennekens ruled in favor of HDL.
HDL’s next hearing is scheduled July 14. During that hearing, its motion to potentially sell the company will be up for approval.
HDL’s headquarters on Fifth Street downtown. Photo by Burl Rolett.
Health Diagnostic Laboratory has been granted enough financial fuel to continue operating at least another month. But both its lender and its landlord warn that the troubled lab company is on a path that could end in bankruptcy liquidation.
During a court hearing Tuesday, a federal bankruptcy judge approved HDL’s request to continue using its cash collateral to fund its day-to-day operations, at least until a hearing on July 23.
That wasn’t the only good news for the downtown blood testing firm, which is operating $2.3 million ahead of its budget for the month, an HDL attorney said Tuesday.
That surplus, however, does not appear to have eased the concerns of stakeholders, two of which contended at Tuesday’s hearing that HDL may be moving toward administrative insolvency.
HDL filed for Chapter 11 bankruptcy June 7 and has been operating using the cash held by its largest lender, BB&T, as it attempts to secure longer-term debtor-in-possession (DIP) financing. That cash has been held by BB&T as collateral for the credit that HDL had with the bank.
On Monday, HDL made its first move toward a possible sale of the company in an attempt to wrap up its Chapter 11 case as quickly as possible. If that process is approved by the judge, court documents state that a sale would conclude by the end of September.
But in order to continue operating until then, the company needs to either secure DIP financing, which it is still attempting to do, or keep operating on cash collateral. And the latter option may become increasingly difficult as BB&T continues to put up a fight.
BB&T has now twice objected to HDL using more cash, arguing the company has a dwindling cash supply with two large payments looming: a $480,000 rent payment, and an $885,000 installment payment as part of its settlement with the federal government.
“The debtors should not be allowed to use BB&T’s cash collateral because the Chapter 11 Cases are likely to be imminently converted to cases under Chapter 7,” the bank’s objection states.
Robert Westermann, an attorney with Hirschler Fleischer working as conflict counsel to help mediate in the case, told Judge Kevin Huennekens on Tuesday that the settlement payment to the government is not due until July 31, and that HDL is in communications with the landlord of its downtown headquarters, BioTech 8 LLC, to resolve rent issues.
“The debtors do not think that Chapter 7 is imminent,” Westermann said.
But Paula Beran, an attorney with Tavenner & Beran representing the landlord, told the judge that her client had been told candidly that HDL does not have enough money to make post-bankruptcy petition payments.
“It seems we are on a slippery slope to administrative insolvency,” Beran said during the hearing.
She said even if HDL is ahead of its budget for the month, it still has not worked out a way to pay its rent. Berran said that the landlord is prepared to continue working with HDL, adding: “I sure hope my mother was wrong when she said no good deed goes unpunished.”
HDL owns a 58.9 percent interest in the Biotech 8 entity. Another unknown party holds the remaining stake in the LLC.
Beran was not available to comment after Tuesday’s hearing.
Westermann said more funds may become available to HDL after the completion of an equipment auction, which closed to bidders on June 26. However, 30 percent of those proceeds will go to BB&T, and the rest will go into an escrow account controlled by the bank.
HDL also gained approval Tuesday to conduct a so-called “2004 examination” of its Texas-based competitor, True Health Diagnostics and an executive from BlueWave Healthcare Consultants, HDL’s former sales contractor that recently sued the company.
The examinations will attempt to reveal whether True Health has interfered with healthcare providers with which HDL has exclusive contracts, and whether the BlueWave executive, Brad Johnson represented True Health at a tradeshow, violating his legal obligations to HDL as a shareholder.
Jason Harbour, an attorney with Hunton & Williams representing HDL, said at Tuesday’s hearing that the timing for the 2004 examination is especially pertinent because True Health has expressed interest in buying HDL. Before the Richmond firm reveals confidential information as part of a sale process, it should know if its concerns are valid, he said.
Both Johnson and True Health filed objections to the examination, but Huennekens ruled in favor of HDL.
HDL’s next hearing is scheduled July 14. During that hearing, its motion to potentially sell the company will be up for approval.