For the first time in more than 17 months, professionals, including attorneys, involved in the Archdiocese of Milwaukee’s Chapter 11 bankruptcy reorganization will be paid.
Judge Susan V. Kelley of the U.S. Bankruptcy Court for the Eastern District of Wisconsin ruled July 30 that the $1.35 million the archdiocese has on hand be divided proportionally among professionals who have unpaid, approved fees pending.
Attorneys for the Official Committee of Unsecured Creditors (committee) accused the Archdiocese of Milwaukee (debtor) of having $5.3 million at its disposal while the professionals were not being paid.
“It’s not right; it’s not fair that the committee professionals are financing this case,” Kenneth Brown, an attorney for the committee, said. “We’re the ones that have skin in this game and the debtor is getting a pass.”
Kelley responded by noting that it wasn’t a matter of whether the professionals were going to be paid, but when – a point the archdiocese’s attorneys had made in their response to the committee’s motion for payment.
Brown said such reasoning is based on the assumption that the archdiocese’s plan for reorganization is “confirmable.”
“The debtor’s saying to us, ‘You’re only going to get paid if a plan is confirmed that is absolutely abhorrent to your constituency,’” he added.
Daryl Diesing, an attorney for the archdiocese, replied, “We have never said that to them; we never would say that to them.”
He explained that the archdiocese’s monthly operating report showed $5.3 million, but that that wasn’t the amount available. Noting that cash flow decreases during the summer, he said that amount would be decreased by “$1.8 or $1.9 million over the next few months.”
Diesing pointed out that monthly operating expenses for the archdiocese, as well as a cushion of $1.6 million and $250,000 needed to advertise and serve notice of the plan’s confirmation hearings, would reduce the available amount to $1.35 million.
Kelley asked, “Are you saying there is not one dime that could be freed up so that some payments could once again start going to the professionals?”
After more discussion, she ruled that the $1.35 million would be used to pay professional fees.
In bankruptcy, the debtor is responsible for its own fees, as well as those of the creditors. According to figures provided by the archdiocese’s finance office, as of July 31, the total amount of fees filed in the Chapter 11 proceedings are $15.1 million. Of that amount, $8.9 million has been paid.
In an interview with the Catholic Herald on Aug. 1, John Marek, chief financial officer for the archdiocese, said payment of the $1.35 million would not affect the archdiocese’s ministries and programs.
“It just means that when we look at exiting bankruptcy, we will have to look at all of the financial components – what’s available and what the costs are that have to be paid,” he said.
Marek reiterated a point that has been made by the archdiocese throughout Chapter 11: Money collected through the Catholic Stewardship Appeal is not being used to pay bankruptcy fees.
“Restricted moneys are not involved in this,” he said. “The CSA is restricted to the ministries that are listed within the appeal and none of that money is used to pay professionals. That remains outside the costs of Chapter 11. CSA contributions only go to the stated programs and ministries that are the basis for asking for that type of money.”
Marek credited the stewardship of archdiocesan program and ministry directors for helping the archdiocese save money and spend less.
“On an ongoing basis, our staff has continued to do a tremendous job in being very frugal and in adhering very closely to budgets and looking at the most cost effective ways they can find to deliver ministries and programs and maintain all the good work we do,” he said. “So we’ve been able to spend a little less than we thought.”
Marek noted the archdiocese was aware that it “had been successful in conserving cash.”
“When we prepared our plan of reorganization at the beginning of this year we were looking at operating cash on hand to fund some of the costs we would have to pay within this plan, including paying trade creditors, including setting up the therapy fund, including paying the noticing and advertising we have to do in preparation for a plan confirmation hearing,” he said. “We were not oblivious to the fact that there was some cash available that we could use in implementing or finalizing the plan.”
Confirming what archdiocesan attorneys presented in court regarding cash flow, Marek said, “We tend to have a higher amount of cash in June and then as we go through next quarter, if you look at history, we have very significant negative cash flow over those quarters.”
Nonetheless, the work continues,
“The mission of the archdiocese has to continue,” he said. “The services and programs we provide have to continue, and that’s what we’ve been doing, and doing it in a way that is fiscally responsible.”