Education Training U.S. trustee objects to proposed asset sales to IEC

By Kali Hays

New York, Sept. 12 – Education Training Corp.’s U.S. trustee, Roberta A. DeAngelis, objected to the company’s proposed sale of certain of its school campuses to IEC Corp., according to a Sept. 12 filing with the U.S. Bankruptcy Court for the District of Delaware.

According to the purchase agreement with IEC, Education Training sold and transferred the assets and liabilities of 14 campuses located in Florida to IEC prior to filing for bankruptcy in order to “preserve IEC’s ability to obtain Title IV funding for the FCC schools.”

If the company had waited to complete the sale until after filing for bankruptcy, the Office of Postsecondary Education Identification (OPEID) number required by the government to receive funding would have been terminated immediately.

The remaining and uncompleted part of the sale is the transfer of assets and liabilities to IEC of another nine campuses located in California that do not have OPEID numbers.

DeAngelis’ objection stems from the fact the Education Training intentionally closed the first part of the sale pre-bankruptcy “in order to avoid a federal law that would have prevented the debtors from receiving further federal student aid funding upon the debtors’ filing for bankruptcy.”

“The Bankruptcy Court should not be asked to bless an asset sale specifically designed to avoid a federal law that would have made the sale impossible or impracticable in bankruptcy.”

As previously reported, the company’s interim chief executive officer and chief restructuring officer Sean Harding described the sale transaction as “somewhat unusual” as it will not result in significant cash proceeds but said it is “the only alternative the debtors have to keep campuses up and running.”

The consideration for the transaction is $1 million in cash, a $1 million lender consent fee, the assumption of certain leases, contracts and other liabilities and the funding of some expenses that will enable the debtors to “keep certain parts of the business up and running and to conclude and implement ‘Teach-Out’ arrangements that will allow many students attending campuses that are not being sold to conclude their education,” according to an Aug. 26 court declaration.

DeAngelis also objected to the absence of a section in the sale motion “highlighting material terms of the sale, including releases, whether the sale is to an insider, the treatment of avoidance actions, successor liability, or the free and clear character of the sale.”

Considering the pre-petition nature of the bulk of the sale and an alleged lack of information, the trustee asked that the court deny the sale motion in its entirety.

A hearing is scheduled for Sept. 22.

Education Training said that if the sale is approved, the company does not intend to file a plan of reorganization but will seek a conversion to Chapter 7 or a structured dismissal of the Chapter 11 cases.

Education Training, a Lauderdale Lakes, Fla.-based operator of private, for-profit schools, filed for bankruptcy Aug. 25. The Chapter 11 case number is 14-11987.

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