Liberty Medical gets court OK for $22 million Alere claim settlement

By Jim Witters

Wilmington, Del., April 26 - The court's approval of Liberty Medical Supply, Inc.'s settlement with Alere, Inc. and Arriva Medical, LLC will allow the debtors to move forward on a revised business plan and Chapter 11 reorganization, debtors attorney Dennis A. Meloro said.

Judge Peter J. Walsh approved the agreement during an April 26 hearing in the U.S. Bankruptcy Court for the District of Delaware.

Meloro said the settlement will avoid costly and time-consuming litigation over Alere's options under a 2012 management buyout transaction promissory note.

The court earlier rejected the debtors' motion to reject the agreement.

Going forward

With the settlement, Liberty Medical has clarity concerning its remaining assets and is moving forward on negotiations with the official committee of unsecured creditors on a plan of reorganization, Meloro said.

At the same time, the company is negotiating to resolve issues stemming from a disputed post-pay Medicare audit and a pending civil lawsuit, he said.

"We believe we have a sound and good business plan that serves our patients with diabetes and other diseases," Meloro said.

An attorney for the creditors committee said he expected to receive the debtors' revised business plan after the hearing, then meet with the debtors to decide how the case will go forward.

Alere dispute background

Liberty Medical entered into a management buyout transaction promissory note guaranty agreement and related security agreement with Alere in December 2012, as well as an option agreement with the Alere parties under which Arriva obtained an option to require the transfer of specified assets in consideration for cancellation of the promissory note obligations.

The company said Arriva exercised its option on Feb. 4 and indicated that it intended to close the acquisition of the option assets on Feb. 15.

However, before closing, Liberty Medical questioned the scope of the option assets. The closing did not occur under the option agreement, and Liberty Medical filed its Chapter 11 cases, the motion said.

Liberty Medical filed a motion to reject the option agreement on Feb. 22. The Alere parties objected to that request on March 10 and subsequently asked the court to rule that the option agreement is not an executory contract.

At an April 17 hearing, the court found that the option agreement is not an executory contract.

Liberty Medical said the Alere parties claim that they have the right to specific performance of the option agreement and that they have claims against Liberty Medical related to the option agreement, the pre-bankruptcy security agreements and the transactions covered by those agreements, including claims for damages stemming from the company's alleged breach of the option agreement and its delay in closing the option asset acquisition.

Alere agreement terms

Under the settlement and a related option amendment, Liberty Medical will convey the option assets to Arriva and will pay Alere $22.5 million plus unpaid interest in full satisfaction of Alere's $40 million secured claim.

Liberty Medical will still have an obligation to pay specified professional fees of the Alere parties due under its final cash collateral order.

Liberty Medical, a Port St. Lucie, Fla.-based health-care products home delivery provider, filed for bankruptcy on Feb. 15. The Chapter 11 case number is 13-10262.

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