Healthcare finance company DVI filed for Chapter 11 bankruptcy on Monday, nearly two weeks after it announced it would seek protection from creditors.
The filing in U.S. Bankruptcy Court in Wilmington, Del., covers Jamison, Pa.-based DVI and its two operating subsidiaries, DVI Financial Services and DVI Business Credit. DVI reports $1.86 billion in assets and $1.61 billion in debts.
In conjunction with the trip to bankruptcy court, DVI says CEO Michael O'Hanlon has resigned. The new CEO, Mark Toney, is a principal with AlixPartners, a corporate turnaround firm that DVI has hired.
Company spokesperson Joel Weiden says DVI replaced O'Hanlon "to facilitate the restructuring" the financier is beginning.
Fitch Ratings subsequently downgraded DVI bonds to D, its lowest possible rating.
DVI raised the possibility of an internal scandal by disclosing in a Monday press release that there had been a "recent discovery of possible accounting irregularities." DVI says it has set up a special committee of unspecified independent directors to investigate this point.
In warning that bankruptcy was imminent, DVI admitted on Aug. 13 that it may have committed "improprieties" in its dealings with lenders and said its audit committee was investigating possible misrepresentations of collateral in previous borrowings. CFO Steven Garfinkel was placed on administrative leave at the time.
Weiden says Garfinkel's status is unchanged.
In the written statement, the company indicates the new management is hoping to "maximize recovery to creditors" while in Chapter 11 reorganization and is "currently in discussions with several parties regarding a potential sale."
However, DVI says it has not yet secured debtor-in-possession financing to help it cover operating expenses during the bankruptcy process. It was lack of available liquidity that pushed DVI to the verge of financial ruin in the first place.
DVI, which manages $2.8 billion in financed assets for physician practices and other healthcare providers, warned Aug. 5 that it was in dire financial straits after it failed to make a scheduled interest payment on outstanding debt securities, had run out of available credit and was in default on several of its credit facilities.
Deloitte & Touche quit as the company's auditor in June after disagreements over the accounting treatment of several business deals between September 2001 and June 2002. The Securities and Exchange Commission subsequently rejected DVI's 10-Q filing for the quarter ended March 31 because the report had not been certified by an independent auditor.
Publicly traded DVI named BDO Seidman as its auditor on July 17 but has not re-filed its 10-Q for the three months ended March 31, its third fiscal quarter. Nor has DVI reported results for the quarter and fiscal year ended June 30.
The company offers loans and leases, directly and through vendors, to help healthcare facilities finance diagnostic imaging and other medical equipment in addition to its buying accounts receivable from medical practices in need of working capital. It said as recently as May 20 that it had enough liquidity to pay for its business operations.