I attended the 341 meeting of creditors in the bankruptcy case of Perpetua Burr Oak Holdings of Illinois, LLC and related companies (Perpetua Burr Oak Holdings of Illinois, LLC, Perpetua Holdings of Illinois, Inc., and Perpetua, Inc.) on Thursday, October 22, 2009. A 341 meeting of creditors is the first opportunity for the US Trustee and creditors to question the debtor. In this case, there was a substantial turn-out of creditors so much so that the largest courtroom needed to be requisitioned for use because the meeting room could not accommodate all of the creditors. The individuals appearing on behalf of the debtor were Brian Shaw, Perpetua's legal counsel, Randy Sanderson, Perpetua's CFO and Howard Korenthal, Perpetua restructuring officer.
Perpetua's Lawyer Makes Opening Statement
The meeting commenced with an opening statement made by debtor's legal counsel, Brian Shaw. The statement made by Perpetua's lawyer can be summarized as follows:
1. There are actually three (3) debtor corporations - Perpetua Burr Oak Holdings of Illinois, LLC (Burr Oak Cemetery), Perpetua Holdings of Illinois, Inc. (Cedar Park Cemetery), Perpetua, Inc. (Owns the common stock of the above 2 entities).
2. Counsel indicated at the outset that he would not discuss what he referred to as "the alleged criminal acts".
3. Counsel next indicated that the reason the bankruptcy was allegedly filed were twofold:
a.. Because of 60 lawsuits they felt that the legal expenses would be overwhelming and that bankruptcy supplied the best way to rehabilate and open the cemetery and allow business to resume.
b. Bankruptcy would allow all similarly situated creditors to be treated equally.
4. The claim process would allow the creditors to realize an equitable way to be distributed cash to settle their claims and maximize the return to all the creditors. Brian Shaw says to the creditors, "We're on your side."
5. The debtor sees the case going forward as follows:
a. The restructuring officer's plan will be brought to fruition (they never discussed what this plan was);
b. They will work with the sheriff to give the debtor access to the database he created to get this information to the creditors.
c. To accomplish the above, there is computer software that the debtor will need from the archdiocese - the debtor is acquiring this software and creating a website that should be active in med-November. The website is: www.burroakalsip.com.
d. Mid-November is the target date to reopen the cemetery.
e. The cemetery is open on a limited basis now to conduct burials that can be arranged through funeral directors and funeral homes that have traditionally done their burials at Burr Oak.
f. The debtor will seek court approval to honor pree-need contracts in the ordinary course of business. That includes services, plots and headstones pre-petition.
g. The debtor is looking to sell the cemeteries by year's end.
h. The debtor will be working on the debtor's insurance companies to attempt to realize on those policies.
Questions by counsel for U.S. Trustee
Nancy Gleeson, counsel to the U.S. Trustee, then questioned Mr. Sanderson to reveal the following information:
a. He has held the CFO position since July 24, 2009.
b. He has been a consultant to the company for about a year.
c. He prepared and signed the schedules for the bankruptcy filing and they are true and correct.
d. He cannot value the claims of the unsecured creditors.
e. Aged accounts receivable designation on the schedules refers to a situation where a person pays in full for a pre-need matter. The revenue is not recognized until the need is fulfilled
f. Each company has a liability contract with Harleysville Insurance Co. - $1million per occurrence, $2 million aggregate.
g. Travelers have an umbrella policy.
h. Each insurance company has sent reservations of rights letters.
i. The company's bad debt experience is 1 1/2 %
j. Debt from company owned funeral home appears to be uncollectable.
k. The Richard James obligation appears to be collectable.
l. There are 1.8 million of intercompany notes that Sanderson cannot explain at this time.
m. The Burr Oak books and records are located in Chicago. There are records for all of the burials.
n. The corporate office for Perpetua Holdings of Illinois, Inc. is in Calumet Park.
o. The corporate office for Perpetua, Inc. is in Mesa Arizona.
Questions by Creditors
Various creditors were given an opportunity to question the debtor. Most of the questions dealt with how pre-need situations would be dealt with and whether the moneys paid in were being held in trust and would be available to pay for goods and services at need. The answers given assured the creditors that either all or at least 80% of those funds were protected and would be available. Any creditors cancelling their pre-need arrangements would, according to the debtor, become unsecured creditors. Where the debtor could not deliver because a plot was no longer available or because a family gravesite could not be found, the creditor affected would become an unsecured creditor with a claim.
My Observations
1. Perpetua's representative, Larry Sanderson, was a consultant to the company for about a year and was only recently hired by the company as an officer within the last (5) months. Clearly, the company was not willing to expose its senior management to questioning at this point in the proceedings.
2. Although there were many promises that the company intended to honor pre-need contracts "in the ordinary course of business" - when I raised the question of how they expected to do that where in many cases plots could not be found or family plots had someone else buried there, the debtor's counsel accused me of "making a speech". When I pressed him and asked whether they contemplated performing some type of investigation to determine which of the pre-need contracts they could honor and which contracts they would be unable to honor due to the cemetery conditions, he avoided the question by answering that those issues would work themselves out as part of the "claims adjustment process." If they are leaving this determination to the "claims adjustment process", it begs the question how are they going to determine whether they can in fact comply with their pre-need contracts as they come due?
3. The debtor's belief that the Burr Oak cemetery can be sold and that a new buyer will be able to fix the mess that now exists and still makes a profit seems incredibly unrealistic.
4. This bankruptcy needs to have a creditor's committee to inject a dose of "realism" into the process because thus far the debtor seems to be unrealistic about many things on a going forward basis.
