Carbon Health Seeks Court Approval for $100 Million Credit Bid Sale as Backstop to Reorganization Plan

Carbon Health Technologies, Inc. and its affiliated debtors filed a supplemental motion on April 22, 2026, in the United States Bankruptcy Court for the Southern District of Texas (Houston Division), seeking authorization to consummate a $100 million credit bid sale of substantially all of their assets to Future Solution Investments LLC — the company's DIP Lender and Prepetition Lender — in the event the debtors' pending reorganization plan is withdrawn or not confirmed by the court.

Company Background and Business Operations

Carbon Health Technologies, Inc. (CHTI), headquartered at 500 East Remington Drive, Suite 20, Sunnyvale, California, operates a network of healthcare clinics that collectively serve approximately 800,000 patients per year. The company and its debtor affiliates operate as debtors in possession under chapter 11 of the Bankruptcy Code, continuing to manage their businesses and properties in the ordinary course.

Events Leading to Bankruptcy

On February 2, 2026, CHTI and its affiliated entities each commenced voluntary chapter 11 cases before the Southern District of Texas, Houston Division, under Case No. 26-90306 (CML), jointly administered before Judge Lopez. On February 16, 2026, the Office of the United States Trustee, Region 7, appointed an Official Committee of Unsecured Creditors (the "Creditors' Committee"). No trustee or examiner has been appointed in the cases.

The Dual-Track Restructuring Strategy

The debtors commenced these chapter 11 cases to conduct both a postpetition marketing and sale process and, in parallel, pursue a chapter 11 plan. The dual-track approach was designed to maximize value on an efficient timeline. The first track involved a postpetition marketing and sale process (the "Sale Process"), initiated when the debtors filed a bid procedures motion on February 3, 2026. The court entered the Bid Procedures Order on February 10, 2026, which formally authorized the Sale Process and permitted Future Solution Investments LLC to submit a credit bid on account of its DIP and prepetition secured claims pursuant to Section 363(k) of the Bankruptcy Code.

The second track involved the confirmation of a chapter 11 plan premised upon a debt-for-equity exchange. On March 4, 2026, the debtors filed a Combined Disclosure Statement and Plan of Reorganization, subsequently amended on April 7, 2026. On April 8, 2026, the court entered a Solicitation Order conditionally approving the Disclosure Statement and scheduling a combined confirmation hearing for May 27–29, 2026 — anticipated to be a fully contested three-day trial.

The Sale Process and Its Results

The postpetition Sale Process, conducted under court-approved bid procedures, did not yield an actionable proposal. The debtors report that no single bid or combination of bids resulted in a proposal that provided value in excess of the liens securing the DIP Claims and Prepetition Secured Claims. In the aggregate, all bids received did not come close to $100 million.

Administrative Expenses and the Risk of Administrative Insolvency

The debtors contend that contested confirmation proceedings — including extensive discovery and a fully contested three-day trial scheduled for May 27–29, 2026 — have driven professional fees and other administrative costs far beyond the amounts originally budgeted for these chapter 11 cases. The resulting fee burn has created a meaningful risk of administrative insolvency, raising the prospect that available DIP financing could be exhausted before the confirmation hearing concludes and leaving the estates unable to satisfy administrative claims as they come due.

If administrative expenses continue to accrue at the current rate, the debtors warn, the estates may need to pivot from plan confirmation to a sale under section 363 of the Bankruptcy Code on short notice. The supplemental motion is designed to provide a court-authorized mechanism for that contingency, ensuring that the debtors retain the ability to consummate a value-maximizing going-concern transaction if the Plan is withdrawn or not confirmed.

The Proposed Credit Bid Sale

The debtors and Future Solution Investments LLC executed an Asset Purchase Agreement (the "APA") dated April 21, 2026. The proposed Sale Transaction contemplates a $100 million credit bid consisting of the Prepetition Credit Bid Amount (excluding the MOIC, or "multiple on invested capital," component, which is the subject of a pending challenge by the Creditors' Committee), the DIP Credit Bid Amount, and the Restructured Indebtedness — plus the assumption of certain specified liabilities. The allocation among these three components is to be determined by the buyer in its sole discretion prior to closing.

The APA is structured as a contingency mechanism. The agreement becomes effective only if: (i) the court declines to confirm the debtors' reorganization plan, or (ii) the debtors, with the buyer's consent, withdraw, terminate, or otherwise abandon the plan. The outside closing date under the APA is June 30, 2026.

The debtors state that they continue to believe the Plan is a better alternative to the Sale, as the Plan provides for payment of all administrative expenses plus a certain recovery to general unsecured creditors. However, the debtors contend that if the Plan is not confirmed or is withdrawn, the Sale is preferable to a liquidation.

The debtors argue that the Sale Transaction represents the value-maximizing going-concern alternative in that circumstance, given that the Sale Process produced no bids approaching $100 million. The debtors further assert that additional marketing efforts are unlikely to yield superior value, as the market has already had the opportunity to bid through a postpetition sale process conducted pursuant to court-approved bid procedures.

Key Terms of the Asset Purchase Agreement

The APA provides for the sale of substantially all of the debtors' assets free and clear of all liens, claims, and encumbrances, with certain exclusions. Excluded assets include the debtors' rights under the APA itself, certain deposit and bank accounts, Excluded Cash, certain D&O and other insurance policies, Excluded Contracts, securities, tax and corporate records, causes of action against current and former insiders, and avoidance actions (except against continuing vendors).

Assumed liabilities include post-closing executory obligations, postpetition trade payables, obligations to Transferred Employees, and all Cure Costs associated with assumed contracts and leases. Excluded liabilities encompass all pre-closing liabilities not expressly assumed, including employee benefit plan liabilities, pre-closing accounts payable, indebtedness, taxes, violations of or obligations under law, and third-party payor overpayments.

The APA provides that most of the debtors' existing employees are expected to transition to the buyer as Transferred Employees. Excluded Cash provisions include up to $250,000 reserved for the sellers' wind-down expenses and an additional $25,000 reserved for a chapter 7 trustee or their professionals in the event of a subsequent conversion.

Contract Assumption and Assignment

In connection with the proposed Sale Transaction, the debtors have provided counterparties with a series of cure notices. An Initial Cure Notice was filed on March 5, 2026, with an objection deadline of March 17, 2026. A Second Cure Notice was filed on April 16, 2026, and a Supplemental Cure Notice was filed on April 20, 2026. The objection deadline for both the Second and Supplemental Cure Notices is May 13, 2026.

The debtors seek authority to assume and assign executory contracts and unexpired leases to the buyer under Section 365 of the Bankruptcy Code, with Cure Costs to be paid as part of the Assumed Liabilities. For contracts where only the Cure Cost amount is disputed, the debtors request that assumption and assignment be permitted with disputed amounts placed in a segregated account pending resolution.

Legal Framework

The debtors invoke several provisions of the Bankruptcy Code in support of the motion. Under Section 363(b), which permits sale of estate property outside the ordinary course of business after notice and a hearing, the debtors assert that articulated business justification exists for the Sale Transaction under established Fifth Circuit precedent. The motion identifies four principal business justifications: (1) the going-concern sale represents the most value-maximizing alternative following a postpetition sale process that yielded no actionable bids; (2) the sale provides certainty to counterparties of contracts and leases and enables employees to retain their jobs; (3) the buyer, as the primary creditor constituent, supports the sale and is credit bidding with undisputed postpetition and prepetition secured debt; and (4) without the sale, the estate would need to convert to chapter 7, resulting in forced liquidation of assets, layoffs of a significant portion of employees, and a loss of patient care for most or all of the 800,000 people per year who rely on the debtors' clinics.

Under Section 363(f), the debtors seek to sell the assets free and clear of all interests, asserting that at least one of the five disjunctive conditions is satisfied — specifically, that the Prepetition Agent and DIP Agent have consented to the sale free and clear, satisfying Section 363(f)(2). The debtors also seek a finding under Section 363(m) that the buyer qualifies as a good faith purchaser, noting the APA was negotiated at arm's length and that the buyer is represented by qualified counsel and has not engaged in conduct indicating a lack of good faith. The debtors further seek waiver of the 14-day stays imposed by Bankruptcy Rules 6004(h) and 6006(d) to allow the Sale Transaction to close as soon as possible.

Consequences of Failure to Close

The motion states that failure to consummate the Sale Transaction and conversion of these cases to chapter 7 would substantially reduce creditor recoveries, result in forced liquidation of the assets, layoffs of a significant portion of the debtors' employees, and a loss of patient care for most or all of the 800,000 people per year who rely on the debtors' clinics.

Key Dates and Deadlines

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