Poughkeepsie clinic must pay fees or lose bankruptcy protection

A bankruptcy judge has approved dismissal of a Poughkeepsie clinic’s reorganization case for not adhering to court regulations.

U.S. Bankruptcy Judge Cecelia G. Morris also ruled on April 14 that, if New York Hand & Physical Therapy does not pay fees to the trustee to assisted the clinic, the case can be converted to liquidation. Then the clinic would lose the protection of bankruptcy court and creditors could seek financial relief in other courts.

“Persistent unexcused failure” to file operating reports, Judge Morris ruled, and the clinic’s inability to confirm a reorganization plan “demonstrate cause to dismiss the case.”

New York Hand & Physical Therapy petitioned for Chapter 11 protection in December 2021, declaring $30,000 in assets and $212,236 in liabilities.

Clinic president Patrick Clough blamed the financial difficulties on landlord-tenant issues and the Covid-19 pandemic.

The U.S. Trustee appointed Charles Persing — an accountant who is also certified as a valuation analyst, fraud examiner and insolvency and restructuring adviser — to oversee the bankruptcy.

His tasks included ensuring compliance with bankruptcy regulations, analyzing the clinic’s assets and debts, helping negotiate a reorganization plan and giving candid advice to the court.

Such trustees, Morris noted, are the “honest brokers” who provide credibility in evaluating the debtor’s prospects for reorganizing successfully. That success depends on part, she further noted, on the debtor’s openness and transparency with trustees, creditors and the courts.

But New York Hand & Physical Therapy frequently failed to file monthly operating reports on time, according to the decision, and has filed none since January.

Last year, the U.S. Trustee’s regional office filed a motion to dismiss the case or convert it to liquidation, “in the best interests of creditors.”

Financial disclosures in the monthly operating reports are the lifeblood of the reorganization process, trial attorney Alicia M. Leonhard stated in a memorandum of law. They are the primary means for monitoring compliance with bankruptcy regulations and serve as a litmus test for the debtor’s ability to reorganize.

The U.S. Trustee urged the court to condition dismissal of the reorganization case on full payment of Persing’s $12,631 fee.

The clinic did not object to dismissal but questioned the legality of conditioning dismissal on payment of Persing’s fee.

“Everyone wants to get paid for services or debts owed to them,” the clinic’s attorney, Devon Salts, argued in an April 10 affirmation. Even his office will not be fully compensated, he said, and there is no authority for a trustee to get fees when the case is dismissed.

The clinic also claimed that it did not have enough cash on hand to pay the trustee.

“The debtor’s own operating reports tell a different story,” Morris said. “The debtor has apparently done well for itself since filing its petition with this court.”

The reports show that cash on hand has steadily increased from about $6,000 in April 2022 to $28,893 this past January.

The clinic “has enriched itself with the benefits given to it as a debtor,” Morris stated in her decision. “The court will not allow the debtor to avoid paying for the sixteen months of professional services it cashed in on.”

New York Hand & Physical Therapy has appealed the decision.