Attorneys for Lon Morris College filed a petition last week in the Eastern District of Texas Bankruptcy Court for permission to liquidate all of its assets, including buildings and property in a cash-only auction.
The document was filed in Tyler and the hearing is scheduled for 9:30 a.m. Oct. 31, where the judge can approve, deny or amend LMC's request.
The oldest junior college in Texas hired Bridgepoint Consulting in May to help restructure its large amount of debt. In July, the college filed for Chapter 11 bankruptcy and hired Capstone Partners LLC to help it facilitate a transaction with another educational institution or strategic partner.
In August, the Department of Education suspended LMC's Title IX status, and the bankruptcy court revoked the privilege of participating in HEA programs, which allowed LMC to disburse federal funds and federal student aid such as the Pell Grant, Teacher Education Assistance for College and High Education grants, Federal Work Study and direct loan programs.
Jacksonville City Attorney Joe Angle, who is representing the city on two matters pertaining to the college including an outstanding water bill and the rodeo arena property, said funds raised from the liquidation will be used to pay its creditors.
He said teachers and staff would be paid first, followed by those who provided debt issuance loans, then secured creditors and unsecured creditors.
Liens on property have been filed by Amegy Bank, N.A., the Scurlock Foundation, Austin Bank and Texas National Bank, the document states.
Tim McRae, a non-executive board member for the college, said he feels its important for the teachers to be paid back first.
“I think that is the most odd experience I ever had and watching the staff and faculty stand by that college knowing they aren't getting paid,” he said. “I don't know how many of us would do that. They cared about those students and they love this community. They really bet their incomes on trying to keep that college open.”
According to the debtors application to employ an auctioneer, filed with the court on Sept. 28, Capstone Partners has suspended its efforts and the college is working on a plan to liquidate its assets.
“Because of many factors, including the loss of Title IX eligibility, Capstone has now suspended its efforts, though parties did express interest in the assets,” the document states.
Capstone agreed to change its agreement with LMC to act as a buyer's broker, which represents a buyer to find property and help it through the purchase, documents state. The auctioneer plans to pay Capstone a 2 percent fee for any property it helps facilitate the purchase for.
The college wishes to employ Tranzon as the auctioneer, which will be paid a 10 percent buyers premium paid by the purchaser but will pay half of marketing expenses for the sale, not to exceed $35,000.
The college proposes three auctions to ensure the maximum value for the property, documents state.
The first is a sealed bid, with a deadline of Nov. 13, and if necessary a live auction on Nov. 15. If there are no bids on personal property in the auctions, it will be sold in an internet auction proposed on Nov. 27.
“Lon Morris College believes, in the exercise of its business judgement, that the proposed sale of the property will generate the most value for the benefits of the creditors of the estate with the least amount of risk of further diminution of the value of the estate,” documents state.
McRae said he would have liked to have seen the college move to another institution, but has no idea what is in store because he is not on the executive committee, which is in control of how Bridgepoint proceeds in the bankruptcy process.
“At a point you have no other option but to liquidate,” McRae said. “You have that responsibility to the creditors. They deserve for you to try your best to optimize your return, and a Chapter 11 still takes money. When that runs out you have to do the best you can.”
Dawn Ragan, chief restructuring officer for Bridgepoint Consulting said she had no comment on the future of the college or where it stands in the bankruptcy hearings.
“I don't have any answers at this time,” she said. “We are trying to figure all that out.”
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