In re Southern Humboldt Community Healthcare District

Memorandum of Decision re Plan Confirmation

I. Introduction

Debtor Southern Humboldt Community Healthcare District (“District”) is a health care district created under § 32000 et seq. of the California Health and Safety Code to provide hospital services to the rural portions of southern Humboldt County. It filed its Chapter 9 petition January 20, 1999. Its plan of reorganization is now before the court.

The District’s primary creditor is Six Rivers National Bank (“Bank”). The District owes the Bank about $665,000.00 on account of a 1998 loan evidenced by a note and secured by a deed of trust to District real property. The deed of trust is probably avoidable as a preference; for purposes of confirmation, the Bank is treated as unsecured.

The District asserts that the Bank has no claim at all because under state law the District was not permitted to incur indebtedness beyond its ability to repay within the fiscal year. Therefore, according to the District, the Bank has no claim and its ballot must not be counted. If the District is correct, then it has sufficient votes to obtain confirmation of its plan.

II. Procedural Status

This matter was continued for two months due to…