the full complement of goals sought
in connection with the filing of the
Chapter 11 cases. Absent changes to
the HEA and Bankruptcy Code, the
likelihood of a similar confluence of
circumstances permitting a sale of this
nature in the future seems remote. 38
Given the hurdles created by
Congress vis-à-vis the amendments
to the HEA and Bankruptcy Code,
what are some key takeaways for
the restructuring professional in
advising a financially troubled IHE?
Among them are the following:
• When Title IV funding is
at stake, a straightforward
Chapter 11 reorganization
appears to be off the table.
• While a sale of an IHE as a
going concern in Chapter 11
may be possible, FCC Holdings
illustrates that in many, if not
most, instances, the machinations
called for to accomplish the
sale will be prohibitive.
• The statutory restrictions governing
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a going concern sale of an IHE (in
or out of bankruptcy) all but limit
the market for such an entity to
strategic buyers (other IHEs) with the
necessary financial wherewithal.
• Even with a qualified buyer,
achieving the consensus of all
vested parties—the DOE, state
licensing agencies, accreditation
commissions, and secured
lenders—is also a prerequisite
to a successful sale. As such,
establishing a meaningful dialogue
with these constituencies at the
onset of the sale process is critical.
Circling back to the negotiation
paradigm, the by-product of the
barriers to continued funding and the
corresponding dilution of restructuring
alternatives is the resultant tipping of the
scales in favor of the lender and other
members of the creditor body. If an IHE
cannot wield the threat of Chapter 11, it
is confined to an environment in which
the lender has the unfettered ability to
exercise available remedies in the face of
an IHE’s resistance to unfavorable loan
modification scenarios. At that point,
the IHE is left with the threat of mutually
assured destruction—i.e., offering to
hand over the keys—as perhaps its
most compelling negotiating tool. J
1 20 U.S.C. § 1070 et seq.
2 Id. § 1001 et seq.
3 See id. §§ 1001(a) & 1002(a).
4 11 U. S.C. § 101 et seq.
5 Betty Owen Schools, Inc. v. United States
Department of Education (In re Betty
Owen Schools, Inc.), 195 B. R. 23, 32 (Bankr.
S.D.N. Y. 1996) (citing S. Rep. No. 102-204,
102d Cong., 1st Session. at 3, 44 (1991)).
6 20 U. S.C. § 1002(a)( 4); 34 C.F.R. § 600.7(a)( 2).
7 34 C.F.R. § 600.7(i)( 2).
8 Betty Owen Schools, 195 B. R. at 32.
9 11 U.S.C § 362(b)( 15).
10 Id. § 362(b)( 16).
11 Id. § 541(b)( 3).
12 134 B.R. 399 (Bankr. E. D. Cal. 1991).
13 Id. at 401; see also In re Draughon Training
Institute, Inc., 119 B. R. 927, 932 (Bankr. W. D.
La. 1990) (holding that Chapter 11 debtor’s
accreditation, state licensure, and DOE
accreditation were property of the estate
under Section 541 of the Bankruptcy Code,
albeit non-transferable under Section 363).
14 134 B.R. at 402.
15 195 B.R. 23 (Bankr. S. D. N. Y. 1996).
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