Morris Brown College, a historically black college in Atlanta and part of the Atlanta University Center (which also includes Clark Atlanta University, Spelman College, Morehouse College and the Morehouse School of Medicine) filed a Chapter 11 petition in the Northern District of Georgia on August 25, 2012 to avoid a foreclosure of its property. The case is In re Morris Brown College, Ch. 11 Case No. 12-7188 (N.D. Ga.) (click here for .pdf of petition).
Morris Brown, established in 1881 and affiliated with the African Methodist Episcopal Church, had faced financial difficulties for several years. It lost its accreditation in 2002 during a financial mismanagement scandal, thereby losing its federal funding, and it also lost its funding from the United Negro College Fund. The school currently has only 50 students. The school was facing foreclosure in September 2012 after investors called $13 million in bonds, but the Chapter filing stops the foreclosure for now. It is possible that the bondholders seek court authority to proceed with the September foreclosure, although judges typically give debtors an opportunity to show they can reorganize or otherwise work on a resolution.
Other filings in the case include a List of 20 Largest Unsecured Creditors and the Declaration of Stanley Pritchett, President of Morris Brown, in Support of the First Day Motions. The information provided in the Declaration of Dr. Pritchett includes the following:
- Over the past year, Morris Brown College has engaged in significant and extensive discussions with Transnational Association of Christian Colleges and Schools (“TRACS”) in an effort to obtain accreditation and has met the vast majority of the requirements for that accreditation. Most importantly, prior to obtaining accreditation, Morris Brown College must demonstrate its financial stability. Accordingly, through its discussions with TRACS and negotiations with various large creditors, Morris Brown College has been able to successfully resolve a significant amount of its outstanding debts.
- Morris Brown College anticipates that upon reorganization of its financial
condition, it could achieve candidacy leading to full accreditation through TRACS within six to twelve months of its emergence from Chapter 11 (reaching candidacy entitles students to receive federal financial aid).
- Like all other non-profit educational organizations, Morris Brown College relies on a combination of earned and contributed income. In a typical year, about 85% of its total gross income is derived from earned income (largely, alumni gifts and donations that have been supplemented by federal financial aid prior to the College’s loss of accreditation) and 13% comes from student tuition.
- Most importantly, a large portion of Morris Brown College’s main campus and several of its facilities are located on real estate that was granted to Morris Brown College by Clark-Atlanta University. Morris Brown College is entitled to retain this real estate so long as Morris Brown College remains in operation. Should Morris Brown College cease operating, it is likely that a large portion of its campus would revert to Clark-Atlanta University pursuant to the terms of the grant documents.
- In addition to the portion of the campus that is encumbered by the reversionary interest held by Clark-Atlanta University, several of the campus lots (including some of those that are subject to the reversionary interest) are encumbered by long-term bond debt totaling approximately $13 million. Presently, the bond holder is proceeding with litigation against Morris Brown College and is attempting to foreclose its interest in these lots. The AME Church also holds a secured position with respect to certain portions of Morris Brown College’s campus.
- Over the past several years, as Morris Brown College’s financial problems became increasingly evident, it responded in the short term by liquidating unnecessary assets and reducing operating expenses through the reduction in personnel, and initiating discussions with creditors, which has resulted in the elimination of approximately $14 million in outstanding debt over the past year.
Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, creditor committees, trustees, court-appointed receivers and other interested parties in bankruptcy cases and bankruptcy litigation. For more information, click here.