Medly’s conversion motion draws limited objection from U.S. trustee

By Sarah Lizee

Olympia, Wash., April 19 – Medly Health Inc.’s motion seeking conversion of its Chapter 11 bankruptcy case to Chapter 7 drew a limited objection from Regions 3 and 9 U.S. trustee Andrew R. Vara, according to documents filed Wednesday with the U.S. Bankruptcy Court for the District of Delaware.

The U.S. trustee said he does not object to conversion in general, but there is an unapproved settlement term sheet entered into between the debtors, the official committee of unsecured creditors and prepetition lenders.

The settlement created a reserve of $1 million, which is held by the debtors.

The term sheet also sets forth various sharing arrangements between the prepetition lenders and general unsecured creditors regarding proceeds of causes of action.

Vara said the creditors committee did not seek or obtain approval of the settlement agreement.

The U.S. trustee said that because the proposed settlement does not comply with the bankruptcy code’s distribution scheme, by requiring distribution of estate assets to general unsecured creditors without payment in full of claims with higher priority, it cannot be approved.

A hearing is scheduled for April 25.

The Boulder, Colo.-based pharmacy company filed Chapter 11 bankruptcy on Dec. 9 under case number 22-11257.

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