Explore the strategic world of M&A in our latest blog post, ‘Successful Acquisition: Buyer’s Prudent Move in Distressed Hospital Purchase.’ Uncover the legal intricacies and triumphs as a California-based for-profit hospital chain navigates the acquisition of a 211-bed independent community hospital in Newark, New Jersey. Delve into the challenges faced, the bankruptcy proceedings, and the court’s decisive ruling in a real-life M&A saga. Learn how acquiring distressed businesses in bankruptcy can be a savvy move for growth and strategic positioning. #MandA #LegalStories #BusinessAcquisition #BankruptcyStrategy”
M&A Stories
August 14, 2018
In a strategic acquisition move, Buyer, a California-based for-profit hospital chain, successfully purchased a 211-bed independent community hospital in Newark, New Jersey, free and clear of a state age discrimination claim against the seller. This M&A story unfolds as follows:
On May 28, 2014, an asset purchase agreement was executed, with Buyer acquiring Seller’s hospital for $84 million. The sale faced challenges, including the termination of Roseann, a long-term employee, on August 19, 2015, while the transaction was still pending. Roseann, employed since March 1968, worked as a laboratory aide and department administrative assistant.
Despite hurdles, by the end of October 2015, all necessary governmental approvals were secured. However, on November 10, 2015, the hospital filed for chapter 11 bankruptcy due to depleted resources, necessitating financial restructuring.
Undeterred, the sale proceeded within the bankruptcy proceedings. Roseann, listed as a creditor, received all required notices. A court hearing on January 20, 2016, granted Seller the authority to sell the hospital assets free and clear of liens, claims, and encumbrances. The transaction closed on March 1, 2016.
Surprisingly, three months post-closure, Roseann sued Buyer for age discrimination, seeking various damages. She argued that Buyer was her employer or, alternatively, a successor liable under New Jersey’s age discrimination law.
Buyer swiftly acted by filing a motion in bankruptcy court on October 26, 2016, seeking to prohibit Roseann’s state court action. The court ruled in favor of Buyer, emphasizing that Buyer did not assume any liabilities owed to Roseann, and the hospital was sold free and clear. This decision was upheld by the federal district court.
This case, exemplified by In Re East Orange General Hospital, Inc., demonstrates the advantages of acquiring distressed businesses in bankruptcy. Buyers can secure assets without inheriting most of the seller’s liabilities, making it a strategic move for those eyeing growth or seeking an exit strategy.
Case Reference:
In Re East Orange General Hospital, Inc., Civ. No. 17-1595, Bankruptcy Case No. 15-31232 (Jointly Administered), United States District Court, D. New Jersey, (June 28, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
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