April 15 (Bloomberg) -- Scooter Store Holdings Inc., a supplier of motorized scooters and wheelchairs throughout the U.S., filed for bankruptcy with a plan to sell virtually all of its assets.
“Historical overhangs coupled with an increasingly complex regulatory environment and mounting economic pressure in the health-care sector have significantly impacted the company’s ability to operate under its current model,” Chief Executive Officer Martin Landon said today in a statement.
The closely held company, based in New Braunfels, Texas, listed assets of less than $10 million and debt of more than $50 million in Chapter 11 documents filed today in U.S. Bankruptcy Court in Wilmington, Delaware. Seventy-one affiliates also sought protection.
Scooter Store will use Chapter 11 “to seek to create a new, financially healthy provider that operates in strict accordance with all legal, contractual and regulatory requirements,” Landon said.
The company owes more than $19 million to the Centers for Medicare & Medicaid Services, administrator of the two government programs, according to court papers. Medicare provides health-care coverage for the elderly and disabled, funded through a payroll tax and other federal revenue. Medicaid provides coverage for the poor, administered by states and funded jointly by state and federal governments.
The company said in an earlier statement that government representatives searched corporate headquarters Feb. 20 and Feb. 21 and company officials cooperated with them. Investigations “have created significant financial burdens, as well as damaged the debtors’ commercial appeal,” Chief Financial Officer Charles Lowrey said in bankruptcy papers.
The company, which has served more than 700,000 older and disabled customers, is “heavily regulated” by the Medicare and Medicaid systems, the Justice Department and the inspector general’s office in the Department of Health and Human Services, he said.
A switch by Medicare to “a 13-month capped rental model with respect to collection of payments” for scooters, negatively affected debt service, he said.
Also harmful has been a “criminal investigation by the Department of Justice” into the “former management team,” and a civil investigation into “billing and reimbursement procedures,” he said. The probes are continuing, Lowrey said.
Morgan, Lewis & Bockius LLP and Young Conaway Stargatt & Taylor LLP are Scooter Store’s bankruptcy lawyers, the company said. Morgan Joseph TriArtisan was hired to help with the asset sales and Lawrence Young of AlixPartners LLP was named chief restructuring officer.
Affiliates of private equity firm Sun Capital Partners , based in Boca Raton, Florida, purchased a majority voting interest in the debtors in 2011. Presently, Sun “owns indebtedness, preferred equity, and warrants to purchase a 66.82% voting ownership interest in the debtors,” court papers show.
Creditors without collateral backing their claims include Pride Mobility Products, with a claim of about $15.9 million, and Shoprider Mobility Products Inc., with a claim of about $8 million, according to court papers.
The case is In re Scooter Store Holdings Inc., 13-10904, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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