By Ryan C. Wood
Today, December 5, 2018, USA Gymnastics, Inc., a 501(c)(3) tax exempt organization, unfortunately filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code in the Southern District of Indiana; Bankr. Case No. 18-09108-RML-11. The filing of the Chapter 11 will allow USA Gymnastics to address the various lawsuits filed against it resulting from the unfortunate and criminal conduct of Dr. Larry Nasser. USA Gymnastics has insurance that will cover damages and the Chapter 11 will help provide a cost effective way to allocate insurance proceeds to victims. I will not be getting into the details and nature of the various lawsuits given the sensitive nature of the lawsuits and this article is about the bankruptcy filing of USA Gymnastics. This is an example of what can happen to individuals and businesses. One person or event can change 30 years of wonderfulness. The Bankruptcy Code is a powerful tool that provides all kinds of ways to reorganize debt, provide efficiency and allow a person or organization to confirm or approve a plan of reorganization and continue on. This is what USA Gymnastics, Inc. and their bankruptcy attorneys hope to do for the benefit of all parties involved.
The information provided in the bankruptcy filing is very interesting. According to a declaration filed in support of the Chapter 11 filing the 501(c)(3) tax exempt entity is a Texas corporation and governed by a board of directors from Indianapolis, Indiana. USA Gymnastics also has a separate entity called The National Gymnastics Foundation to support their mission further with grants and other funding. Fortunately or unfortunately, depending upon your opinion, the United States Olympic Committee has taken steps to revoke or stop USA Gymnastics from being the governing body regarding gymnastics in the United States. There have also been over 100 lawsuits filed against USA Gymnastics that I am sure most people have read about in the news already. Michigan State University and claims from plaintiffs in California were medicated in a single proceeding and a settlement was reached totaling $500 million.
Finances
On the financial side USA Gymnastics leases office space in Indianapolis for about $22,900 a month and has various assets totaling about $6.5 million. The fling provides USA Gymnastics does not have secured debt or general unsecured debts that are excessive. This filing is all about the 100 or so lawsuits filed that are what called unliquidated claims. They are unliquidated given they have not been reduced to judgment or easily calculated. A breach of contract claim is what is called a liquidated claim given it can be easily and readily calculated. The 100 or so lawsuits are estimated to create a potential liability of $75 million to $100 million.
The Petition and First Day Motions
The petition filed by USA Gymnastics bankruptcy attorneys was not entirely filed. The remainder of the petition must be filed by December 19, 2018. What is provided is the list of the 30 largest unsecured creditors.
Normally a Chapter 11 debtor must close all of their bank accounts and open new accounts as the “Debtor-in-Possession” given the filing of the bankruptcy case. The party that files for Chapter 11 continues to have possession of the assets of the bankruptcy estate including bank account money. USA Gymnastics is seeking the Court waive the requirement to open new accounts given USA Gymnastics has a system in place to manage cash that is easily traceable and already in place. USA Gymnastics also hold funds for various state and regional gymnastic entities that do not have their own tax payer identification numbers. For efficiency and ease of transition to be a debtor under Chapter 11 keeping the current system in place is the most efficient and for the benefit of creditors in the case.
For an entity to continue to operate it has to pay certain current liabilities and use cash the entity possesses at the time a Chapter 11 case is filed. USA Gymnastics is also asking for permission from the Bankruptcy Court to pay certain pre-filing obligations such as certain employee wages (53 employees) and benefits so their employees do not suffer significant financial hardship.
Also USA Gymnastics seeks permission to continue to pay necessary operating costs such as utilities, potential tax payments and various insurance policies so the entity can continue to operate normally.
None of the requests made by USA Gymnastics seem unreasonable or not necessary to continue to operate the not-for-profit as it has been operating.
The only request made that is not so common was the request to file the creditor matrix or list under seal or protected so that the general public cannot view the list of creditors. Again this goes back to the nature of the more than 100 lawsuits resulting from unfortunate conduct of Dr. Larry Nasser.
