Maxicare Health Plans said Monday that a majority of its creditors and stockholders voted to accept its plan to reorganize the company to emerge from federal Chapter 11 bankruptcy protection.
In a report to the U. S. Bankruptcy Court in Santa Ana, the Los Angeles-based health maintenance organization said holders of more than 91% of the stock voted to accept the plan. A majority of each class of creditors and the holders of more than two-thirds of the debts owed in each class approved the plan, the company said.
The fate of the plan is now in the hands of U. S. District Court Judge John J. Wilson, who began a hearing Monday on whether to confirm the plan.
Some parties objected to the plan, including a group of states that continue to contest the bankruptcy court's jurisdiction over Maxicare. The states earlier argued that health maintenance organizations operate like insurance companies, which are specifically barred by the bankruptcy code from filing under Chapter 11. The states argued that the reorganization of the financially troubled company should have been under the supervision of the states.
Wilson ruled against the states on the jurisdiction issue, but some states appealed. Maxicare attorney Peter D. Wolfson told the court Monday that the company had reached an agreement with Illinois, Indiana and Ohio that they would withdraw their appeal of Wilson's decision if the final reorganization plan contains certain protections for Maxicare members in those states.
"We are in the middle of negotiations with Arizona, Texas and Nebraska. We believe we will reach similar agreements with each," Wolfson said.
Two states also have raised questions about whether the reorganized Maxicare would be in compliance with all state regulations. "We will comply with all the state regulations," Wolfson said. Before the plan can become effective, Maxicare must meet certain cash requirements, including having $40 million in retained assets needed to satisfy state minimum net worth requirements.
The reorganization plan would distribute a combination of cash, notes and new common stock to satisfy creditor claims. According to the plan, doctors and hospitals holding claims against Maxicare would own 49% of the reorganized company. Current stockholders would receive 2% of the new stock, plus warrants to purchase additional shares. Wolfson said the company will issue 10 million new shares that would sell for about $8.69 a share, for a total worth of about $90 million.