Nevada County Picayune and Gurdon Times Newspaper Archive

Hospital To File Receivership

It was not a decision the Nevada County Hospital Board of Governors wanted to make, but it had to be done.

Members of the board, in a called meeting May 1, agreed to file for receivership.

The panel will notify the Nevada County Quorum Court of this decision by letter and ask if the property can be reappraised and sold by July 21, 1996.

The date of July 21, 1996 is important because if the former hospital can be sold by then Medicare and Medicaid reimbursements can be obtained.

Should the hospital not sell by July 1, the board will ask the court to lease the structure as soon as possible.

However, once receivership is established there will be no funds for the maintenance of the building. This means the county will have to assume the responsibility of keeping the building and grounds maintained.

Glenn Vasser, hospital attorney, talked to the board concerning questions presented to him by Karen Ward and Buneva Wood.

The biggest problem, he said, is this is a "hybrid" situation legally. "It's not as simple as a statutory creature," he said, "and this creates problems legally."

Vasser said bankruptcy was, for all intents and purposes, out of the question. This is because there is no income being generated, which eliminates a Chapter 11 or 13 bankruptcy. These bankruptcies are primarily reconstructions of finances, with 11 most often utilized by business and industry, while 13 is used mostly by individuals and families.

A Chapter 7 bankruptcy, on the other hand, would mean a liquidation of all equipment and assets. Under a Chapter 7, Vasser told the panel, the situation would be scrutinized by the court and the assets would be turned over to a trustee. The trustee would liquidate all assets, giving the creditors a portion of the monies owed them.

This could cause a problem, he said, because the creditors may then attempt to file claim on the property itself, which is owned by the county.

Another problem with this situation is there is apparently no basis for it under case law.

Vasser said is the building is leased the county would be in control of the monies. Additionally, he said the county would have control of who the facility is leased to.

The board, however, should make a recommendation to the court on who it thinks would be a good corporate citizen. It would then be up to the court to make the decision as property owner.

But, Vasser continued, the creditors would most likely not be able to get any of the money from the lease, because this money would not be part of the hybrid entity the defunct hospital was.

He also said the board members are not personally responsible for the hospital's debts, probably. "I can't see where employees or the board would be responsible," Vasser said.

The staff has been working to manage the day-to-day affairs of the facility, while the board may be protected statutorily, he continued.

However, there is a remote chance, Vasser said, the board and remaining staff could be found responsible, but the plaintiff(s) would have to show damage.

Vasser said he would advise the county not to use the accounts receivable to pay any debt owed, because this could then place the county in a position where the court may imply the county is then responsible for the debts.

The board, though, is in a "Catch 22" situation, he said. If the money coming in is used for maintenance, the creditors can't be paid. But, if the money is used to pay the creditors, the building can't be maintained.

In discussing the appraisal situation, Vasser said he knows of no required waiting period between appraisals. But, he continued, it may be wise for the county to wait for a second appraisal to give the market time to change.

"This is a unique animal," he said. "I would (suggest) appraising the building and equipment separately and sell it."

Vasser said the receivership would be sort of a "civil bankruptcy," which would protect all involved and pay the creditors equally. But, he continued, the money coming in from accounts receivable and the cash on hand would be used to pay debts, and could not be used for maintenance.

The receiver would take control of the accounts receivable, accounts payable and cash. This person would then work out a plan to pay creditors.

Discussing the leasing of the facility, Vasser said it should, in his opinion, be handled the same way a sale would be -- on a competitive basis.

The problem, though, will come in specifications. He said getting the specs together would be hard because it is no longer a hospital, but is "just a building."

However, he said the county might be able to bypass the competition aspect completely because of the uniqueness of the situation, and lease to whomever it wants.

A lease-purchase plan would be almost out of the question. Vasser said a lease-purchase deal would have to be handled exactly like a sale, only the leaser-purchaser would have to pay 100 percent of the appraised value.

Another headache with leasing, he said, is counties, by law, are not allowed to enter into long-term agreements, and must lease a year at a time.

Returning to the topic of receivership, Vasser said the board needs to find some entity, such as a bank, to act as receiver, otherwise a bond will have to be posted.

Additionally, the receiver, like a bankruptcy trustee, is entitled to a reasonable fee for managing the receivership.

Ward was asked to look for an area bank to act as receiver, while Vasser suggested Wood act as the "trustee."

She said she would consider it, but needs legal advice on the responsibilities she would incur.

Vasser was also hired as attorney for the receivership.