Corporate Practice

When FPA Medical Management filed for Chapter 11 bankruptcy protection in July 1998, some creditors expected to recover at least some of what they were owed. After all, this was a physician practice management company that less than a year earlier had enjoyed a market value of $1.37 billion on Wall Street. But as it turns out, such hopes were over-optimistic, given a reorganization plan that is scheduled to be completed this week.

The sales of FPA's remaining assets netted a mere $108.2 million-a pittance compared with the 27,000 unsecured claims totaling more than $3 billion. As it stands, the thousands of physicians, dozens of hospitals, multiple health plans, and others who have claims outstanding can't count on getting a dime.

Many assets were sold for far less than the company originally paid. The deflation is blamed on a depressed market for physician practices. In addition, questions are being raised about whether FPA overpaid for assets in sweetheart deals. In fact, there is so little remaining that the lawyers, accountants, and other professionals who worked on the case swallowed a 15% fee cut to free cash to meet certain legal obligations required to bring closure. Banks, which stand at the front of the line to collect recovered assets, will receive only about $4 million in cash plus accounts receivable, which could be worth a few million more. That compares with their total claims of $319 million.

What unsecured creditors will get is about $2.1 million to administer a trust that will have the authority to pursue certain claims. The claims include fraudulent transactions in which FPA may have overpaid for assets, claims against directors and officers liability coverage, and the voiding of certain transactions that occurred after the company declared bankruptcy. But there is no guarantee, or even probability, that any money will be recovered, much less a sum large enough to make a dent. What's more, the process could take years.