HealthSouth Corp. could be forced to liquidate its substantial holdings if shareholders are successful in gaining control of the board, a company director testified Monday.
In a hearing before the Delaware Chancery Court, HealthSouth audit committee Chairman Lee Hillman reportedly warned that a new board might give into pressure from bondholders to repurchase more than $2 billion in outstanding debt securities, likely triggering further collections from other creditors and forcing HealthSouth to sell off its assets.
Andy Brimmer, spokesperson for the Birmingham, Ala.-based ambulatory surgery and outpatient rehabilitation center operator, confirmed the gist of Hillman's testimony, reported by Dow Jones Newswires, Reuters and the New York Times.
Hillman was arguing against calls by a major HealthSouth investor, the Teachers' Retirement System of Louisiana, for the company to hold its first shareholders? meeting in more than 18 months. The state of Delaware, where HealthSouth is incorporated, requires public companies to hold annual meetings.
The Louisiana pension fund has asked the court to allow shareholders to vote on a new board. The majority of HealthSouth directors held their seats during a $2.7 billion accounting and tax scandal that, to date, has resulted in 15 former executives pleading guilty to federal fraud charges.
Hillman was brought in as an independent director after news of the federal investigation became public.
HealthSouth founder Richard Scrushy, fired as chairman and CEO earlier this year, remains on the board even though he faces an 85-count federal indictment for his alleged role in misstating earnings and inflating the value of the company. Brimmer says Scrushy is entitled to finish his term as director unless Scrushy voluntarily resigns or shareholders vote him out.
One reason why HealthSouth has not called a shareholders? meeting is because the company has disavowed its previous financial reports in light of the scandal. The Securities and Exchange Commission does not allow companies to solicit proxies for shareholder voting without an audited 10-K annual report on file.
Chief Restructuring Officer Bryan Marsal reportedly told the Delaware court that HealthSouth could be ready for a shareholder meeting by May, though he also said that audits might not be completed until early 2005.