Beverly Community Hospital Association, the nonprofit California hospital that sold substantially all its assets in bankruptcy in 2023, is now seeking conversion to Chapter 7 liquidation after its trustee successfully recovered more than $40 million through asset sales, settlements, and preference litigation.
The Conversion Motion
The Chapter 11 Trustee filed a motion on January 12, 2026, in the United States Bankruptcy Court for the Central District of California, Los Angeles Division, asking the court to convert the jointly administered cases to Chapter 7. The trustee argues that with the hospital's operations sold, reorganization impossible, and most major recoveries completed, continuing under Chapter 11 would only diminish the estate through administrative expenses.
Background of the Bankruptcy Cases
The bankruptcy cases of Beverly Community Hospital Association and Montebello Community Health Services began when the debtors filed for Chapter 11 protection on April 19, 2023. An Official Committee of Unsecured Creditors was appointed on May 10, 2023.
On August 7, 2023, the debtors filed a motion seeking approval to sell substantially all assets to Adventist Health White Memorial. The court approved the sale on August 18, 2023, and the closing occurred on September 6, 2023.
The Chapter 11 Trustee was appointed on September 15, 2023, following an emergency request by the secured creditor for trustee appointment.
Post-Sale Recoveries and Settlements
Since the asset sale, the trustee has pursued an aggressive recovery strategy. On July 31, 2024, the court approved several settlement motions that collectively resolved significant disputes in the cases. These settlements resolved the Committee's adversary proceeding against the Master Trustee, fee disputes with various professionals, and established a surcharge agreement.
Approximately $36 million was distributed to the Master Trustee against its secured claims. Additionally, $800,000 was set aside for distribution to general unsecured creditors.
A related entity, the Beverly Foundation, saw its case dismissed on August 15, 2024.
Additional Litigation Recoveries
The trustee and Master Trustee jointly pursued litigation against Adventist Health White Memorial regarding $3.77 million of healthcare program funds. The matter was settled for $3 million, which has been received by the trustee. Following receipt of the first installment, the trustee paid the Master Trustee's secured claim in full.
In April 2025, the trustee commenced approximately 94 preference actions against non-insiders. Most have been settled, dismissed, or resulted in default judgments. More than $1 million has been recovered from these actions.
On April 16, 2025, the trustee commenced an adversary proceeding against former directors and officers of the debtors. This action, case number 2:25-ap-01172-VZ, is currently pending and in mediation.
Strategic Reasons for Delayed Conversion
The trustee's motion reveals that conversion was deliberately delayed for strategic reasons. First, the Official Committee of Unsecured Creditors had a pending adversary proceeding against the Master Trustee that required Committee standing under cash collateral orders issued prior to the trustee's appointment. Had the cases converted to Chapter 7, the Committee would have been disbanded, leaving no party with standing to pursue the challenges. That adversary proceeding was ultimately settled in a manner that provided a benefit of $2.7 million to the estates.
Second, the trustee had been collecting large sums from various state and federal agencies, including Medi-Cal, Medicaid, Quality Assurance Fees, Private Hospital Supplemental Fund, and Federal Emergency Management Agency. In consultation with healthcare counsel, counsel for the Committee, and counsel for the Master Trustee, the trustee determined that conversion to Chapter 7 posed a risk of delaying or impeding receipt of these critical income streams.
Current Status and Remaining Assets
The trustee has now received the last of the projected large receipts from governmental programs. The largest substantial remaining assets are the pending litigation claims, including the directors and officers action and collection of default judgments from preference actions.
To properly administer the cash on hand and amounts to be collected going forward, the trustee will request establishment of a bar date for claims and Chapter 11 administrative claims after conversion.
Legal Basis for Conversion
The debtors are nonprofit entities. Under Section 1112(c) of the Bankruptcy Code, the court may not convert a case to Chapter 7 if the debtor is a corporation that is not a moneyed, business, or commercial corporation unless the debtor requests such conversion.
The trustee argues that courts reviewing this issue have concluded that a debtor's consent to conversion is sufficient to meet the requirements of Section 1112(c). As the representative of the debtors, the trustee asserts he has the power and duty to consent to or seek conversion.
The trustee cites California Nonprofit Law in support of this authority. California Corporations Code Section 6110 references Section 1400(a), which provides that in bankruptcy proceedings, trustees of a corporation have the power to act on behalf of the corporation with like effect as if exercised by unanimous action of the board and shareholders.
Grounds for Conversion
Section 1112(b) of the Bankruptcy Code provides that the court shall convert a case to Chapter 7 for cause. The trustee argues that cause exists because there is no ongoing business to reorganize, substantially all assets have been sold, the trustee has received the last of projected large receipts from governmental programs, the largest remaining assets are pending litigation claims, and continuing under Chapter 11 would only diminish the estate through administrative expenses.
The trustee submits that even if confirmation of a liquidating plan of reorganization was possible, it is neither necessary nor economically feasible. The trustee argues it does not make economic sense to take on the cost of preparing and filing a disclosure statement and plan and soliciting creditors to approve such a plan when liquidation and payment of claims can be accomplished routinely in Chapter 7.
Request for Continued Employment of Professionals
The trustee also requests that the order converting the cases authorize the trustee's currently employed professionals to remain employed upon conversion without the necessity of filing new applications. The motion notes that under Section 348(f)(1)(A) of the Bankruptcy Code, property of the estate in the converted case shall consist of property of the estate as of the petition date that remains in the possession of or under control of the debtor on the date of conversion.
Next Steps
A hearing on the conversion motion is scheduled for February 10, 2026, at 11:00 a.m. in Courtroom 1368 at the courthouse. Under Local Bankruptcy Rule 9013-1(f), any party opposing the relief requested must file and serve written opposition no later than 14 days prior to the hearing.
Case Information
The jointly administered bankruptcy cases are proceeding under case numbers 2:23-bk-12359-VZ and 2:23-bk-12360-VZ in the United States Bankruptcy Court for the Central District of California, Los Angeles Division. Greenspoon Marder LLP represents the Chapter 11 Trustee and filed the conversion motion on January 12, 2026, as docket number 1658.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 28 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.