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UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MASSACHUSETTS EASTERN DIVISION ____________________________________ ) In re: ) ) NEW ENGLAND COMPOUNDING ) CHAPTER 11 PHARMACY, INC., ) CASE NO. 12-19882-HJB ) Debtor. ) ____________________________________) MOTION OF THE DEBTOR FOR INTERIM AND FINAL ORDERS (I) PROHIBITING UTILITY COMPANIES FROM DISCONTINUING, ALTERING OR REFUSING SERVICE, (II) DEEMING UTILITY COMPANIES TO HAVE ADEQUATE ASSURANCE OF PAYMENT FOR POST-PETITION SERVICES, AND (III) ESTABLISHING PROCEDURES FOR RESOLVING REQUESTS FOR ADDITIONAL ASSURANCE (REQUEST FOR EXPEDITED DETERMINATION) New England Compounding Pharmacy, Inc., the above-captioned debtor and debtor-inpossession (the “Company”), by and through its undersigned counsel, hereby submits this motion (the “Motion”) seeking entry of interim and final orders (respectively, the “Interim Order” and “Final Order”) (i) prohibiting providers of water, electricity, gas, heating oil, sewer, waste management, cable-internet, security monitoring, telecommunications and other similar utility services to the Company (collectively, the “Utility Companies”) from discontinuing, altering or refusing service to the Company; (ii) determining that the Utility Companies have been provided with adequate assurance of payment for post-petition services on the basis of the establishment of a Utility Deposit Account (as defined below); and (iii) approving the Company’s proposed procedures for Utility Companies to request additional assurance of payment. In support of this Motion, the Company respectfully states as follows: Background 1.

On December 21, 2012, the Company filed a voluntary petition for relief under

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chapter 11 of the Bankruptcy Code (the “Petition Date”). 2.

The Company continues to own and manage its assets as a debtor-in-possession

pursuant to §§ 1107(a) and 1108 of the Bankruptcy Code. 3.

The Company voluntarily ceased business operations in October, 2012.

Nonetheless, as described more particularly below, the Company’s facility still requires utility service. 4.

The Company is a compounding pharmacy which combines ingredients to create

specific formulations of pharmaceutical products. Prior to the Petition Date, numerous individuals across the country were stricken with fungal meningitis attributed to contaminated products distributed by the Company. In early October, NECC initiated a nationwide recall of potentially contaminated product and, in cooperation with regulatory authorities, ceased operation. More than 100 lawsuits have been filed and hundreds more are expected in connection with this tragic occurrence. 5.

Through this Chapter 11 case, NECC seeks to forge a consensual, comprehensive

resolution of these claims in the form of a Chapter 11 plan establishing a compensation fund for meningitis claimants based on agreements to be reached among them, the Company, its insurers and other parties with potential liability for the meningitis cases. To spearhead this effort, the directors and shareholders appointed Keith D. Lowey of Verdolino & Lowey, P.C. as independent director and chief restructuring officer with plenary and exclusive authority over matters related to personal injury claims and the Company’s conduct of this Chapter 11 case. The Company’s goal is to provide a greater, quicker, fairer and less expensive payout to its creditors than they could achieve through piecemeal litigation. Jurisdiction and Venue 6. 4262091-1

This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. § 1334.

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This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409. 7.

The bases for the relief requested herein are §§ 105(a), 363(b), and 366 of title 11

of the United States Code (11 U.S.C. §§ 101 et seq. as amended, the “Bankruptcy Code”), Rule 6003 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Rules 6012-1 and 9013-1(g) of the Local Bankruptcy Rules for the United States Bankruptcy Court for the District of Massachusetts (the “Local Rules”). Relief Requested 8.

By this Motion, the Company seeks entry of Interim and Final Orders

(i) prohibiting the Utility Companies from discontinuing, altering or refusing service to the Company; (ii) determining that the Utility Companies have been provided with adequate assurance of payment for post-petition services on the basis of the establishment of the Utility Deposit Account; and (iii) approving the Company’s proposed procedures for Utility Companies to request additional assurance of payment. 9.

The Company incurs utility expenses for water, electricity, gas, heating oil, sewer,

waste management, cable-internet, security monitoring, telecommunications and other similar utility services in the ordinary course of business. These utility services are provided by the Utility Companies, a non-exhaustive list of which is attached to this Motion as Exhibit A.1 In the one year period prior to the Petition Date, the Company spent approximately $27,501.68 each month for utility services. The Company believes that, of this amount, approximately $20,000 is

1

Although the Company believes that Exhibit A includes all of the Utility Companies, the Company reserves the right, without further order of the Court, to supplement the list if any Utility Company has been omitted. Additionally, the listing of any entity on Exhibit A is not an admission that any particular entity is a utility within the meaning of section 366 of the Bankruptcy Code, and the Company reserves the right to contest any such characterization in the future. The relief requested in this Motion is with respect to all Utility Companies and is not limited only to those identified in Exhibit A.

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attributable to NSTAR and approximately $410 is attributable to Verizon each month. 10.

Uninterrupted utility services are essential to the Company’s Chapter 11 efforts.

Should one or more of the Utility Companies refuse or discontinue service even for a brief period, it would severely disrupt the Company’s Chapter 11 proceedings, resulting in significant loss to the value of Company’s assets. 11.

Even though the Company ceased operations in October 2012, the Company

requires utility service to preserve its assets. An interruption in access to utility services would impair Company’s ability to perform these functions and could damage the Company’s value to the detriment of its estate, creditors, employees and customers. It is critical that the Company’s utility services continue uninterrupted. 12.

Section 366(a) of the Bankruptcy Code prevents utility companies from

discontinuing, altering, or refusing service to a debtor during the first twenty (20) days of a bankruptcy case. Thirty (30) days after the Petition Date, however, a utility company may discontinue its services to a chapter 11 debtor, pursuant to § 366(c)(2) of the Bankruptcy Code, if the debtor has not provided such utility company with adequate assurance of payment. 13.

To provide adequate assurance of payment for future services to its Utility

Companies, the Company proposes to deposit, for the benefit of the Utility Companies, a sum equal to approximately two months of the Company’s estimated historical utility consumption— or $55,003.36—into an interest-bearing, newly-created, segregated account (the “Utility Deposit Account”) within fourteen days (14) after the entry of the Interim Order.2 If the Company identifies an Added Utility Company (as defined below), the Company will increase the Utility

2

As the Company has ceased its business operations, it is expected that utility consumption going forward will be diminished. Consequently, the amount of the utility deposit—which is based on a time period during which the Company was fully operational—should be more than satisfactory to provide adequate assurance of future payment to the Utility Companies.

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Deposit Account, if necessary, so that the total amount in the Utility Deposit Account will be equal to the average of two months utility consumption for all known Utility Companies. 14.

In addition, the Company seeks to establish reasonable procedures (the “Adequate

Assurance Procedures”) by which a Utility Company may request additional assurance of future payment if such Utility Company believes that the Utility Deposit Account does not provide it with satisfactory assurances. Such Adequate Assurance Procedures would provide that:

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(i)

Absent any further order of this Court, Utility Companies may not (a) alter, refuse, or discontinue service to, or discriminate against, the Company on account of the commencement of the bankruptcy case or any unpaid prepetition charges, or (b) request payment of a deposit or receipt of other security in connection with any unpaid prepetition charges.

(ii)

The Company will serve a copy of this Motion and signed Interim Order via first-class mail, within five (5) business days after the date that such Interim Order is entered, upon each of the Utility Companies identified in Exhibit A. Additionally, the Company will serve a copy of the signed Final Order via first-class mail, within five (5) business days after the date that such Final Order is entered, upon each of the Utility Companies identified in Exhibit A.

(iii)

If the Company learns that a Utility Company was omitted from Exhibit A, the Company shall file a supplement to Exhibit A, adding the name of such Utility Company (the “Added Utility Company”), and shall promptly serve such Added Utility Company with a copy of the Motion, Interim Order and Final Order, as applicable (each such service, a “Supplemental Service”).

(iv)

Any Utility Company may request additional adequate assurance of payment (an “Additional Assurance Request”) within thirty (30) days after the entry of the Interim Order or, in the case of an Added Utility Company, within thirty (30) days of such company’s Supplemental Service (collectively, the “Additional Assurance Request Deadline”) by submitting a written request to counsel to the Company, the undersigned.

(v)

Any Additional Assurance Request must (a) be in writing; (b) set forth the location at which utility services are provided; (c) include a summary of the Company’s payment history relevant to the affected account(s), including any security deposits or other prepayments or assurances previously provided by the Company; (d) describe in sufficient detail the reason(s) why the treatment afforded pursuant to the procedures set forth

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in this Motion does not constitute satisfactory adequate assurance of payment; and (e) include a proposal for what would constitute adequate assurance of payment from the Company, along with an explanation of why such proposal is considered reasonable. (vi)

If a Utility Company makes a timely Additional Assurance Request that the Company believes is reasonable, the Company shall be authorized to comply, in its sole discretion, with such request without further order of this Court.

(vii)

If the Company believes that a Utility Company’s Additional Assurance Request is unreasonable, the Company will attempt to resolve the matter consensually with the Utility Company and if a resolution cannot be reached, will schedule a hearing within a reasonable time following the submission of such Request (a “Determination Hearing”) to determine whether additional assurance of payment to such Utility Company is necessary. If the Utility Company reaches an agreement with the Company before the Determination Hearing, such agreement shall be deemed to constitute adequate assurance of payment that is satisfactory to the Utility Company.

(viii) Pending resolution of a Utility Company’s Additional Assurance Request, such party will be prohibited from altering, refusing, or discontinuing service to the Company or otherwise discriminating against the Company. (ix)

If a Utility Company fails to send an Additional Assurance Request by the Additional Assurance Request Deadline, such Utility Company will have waived its right to make an Additional Assurance Request and will be deemed to have received, by virtue of the Utility Deposit Account, adequate assurance of payment in accordance with § 366(c)(l)(A)(vi) of the Bankruptcy Code.

(x)

Based on the establishment of the Utility Deposit Account, a Utility Company will be deemed to have adequate assurance of payment unless and until a future order of this Court is entered requiring further assurance of payment. Basis for Requested Relief

14.

This Court has the authority to grant the relief requested in this Motion pursuant

to §§ 105(a) and 366 of the Bankruptcy Code. Section 366 of the Bankruptcy Code is designed to protect the Company from utility service cutoffs, while also providing utility companies with adequate assurance that the Company will be able to pay for post-petition services. See H.R.

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Rep. No. 95-595, at 350 (1978), as reprinted in 1978 U.S.C.C.A.N. 5963, 6306. Under § 366 of the Bankruptcy Code, a utility may not, during the first twenty (20) days of the case, alter, refuse, or discontinue services to a debtor in a chapter 11 case solely because of unpaid, pre-petition amounts. 11 U.S.C. § 366(a). The utility may do so, however, unless the debtor furnishes “adequate assurance” of payment (which the Company seeks to do through this Motion), in the form of a deposit or otherwise, for post-petition services in a form “satisfactory” to the utility within thirty (30) days of the Petition Date. 11 U.S.C. § 366(c)(2). 15.

Section 366(c)(l)(A) of the Bankruptcy Code, as amended by the Bankruptcy

Abuse Prevention and Consumer Protection Act of 2005 (the “BAPCPA”), provides that “adequate assurance of payment” for purposes of such section means (i) a cash deposit; (ii) a letter of credit; (iii) a certificate of deposit; (iv) a surety bond; (v) a prepayment of utility consumption; or (vi) another form of security that is mutually agreed on by the utility and the debtor. Accordingly, while the statute specifies the form of assurance that will be deemed to be adequate, it leaves the question of the amount of such assurance that must be provided within the Court’s discretion. See 11 U.S.C. §§ 366(b), (c)(3)(A). 16.

Leaving the determination as to the amount of assurance that a debtor will need to

provide in the discretion of the Court conforms with the pre-BAPCPA case law, under which courts generally looked to the facts and circumstances of each case to ensure that utility companies were not subjected to an unreasonable risk of nonpayment for post-petition services. See, e.g., In re Keydata Corp., 12 B.R. 156, 158 (B.A.P. 1st Cir. 1981); In re Adelphia Bus. Solutions, Inc., 280 B.R. 63, 80 (Bankr. S.D.N.Y. 2002). Courts construing section 366 of the Bankruptcy Code have long recognized that adequate assurance of payment does not constitute an absolute guaranty of the debtor’s ability to pay. See, e.g., In re Caldor, Inc., 199 B.R. 1, 3

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(S.D.N.Y. 1996) (“Section 366(b) requires [a] [b]ankruptcy [c]ourt to determine whether the circumstances are sufficient to provide a utility with ‘adequate assurance’ of payment. The statute does not require an ‘absolute guaranty of payment.’”) (internal citation omitted); In re Steinebach, 303 B.R. 634, 641 (Bankr. D. Ariz. 2004) (observing that “[a]dequate assurance of payment is not, however, absolute assurance”); Adelphia Bus. Solutions, Inc., 280 B.R. at 80 (stating that “[i]n determining adequate assurance, a bankruptcy court is not required to give a utility company the equivalent of a guaranty of payment, but must only determine that the utility is not subject to an unreasonable risk of nonpayment for postpetition services”); In re Penn Jersey Corp., 72 B.R. 981, 982 (Bankr. E.D. Pa. 1987) (stating that section 366 “contemplates that a utility receive only such assurance of payment as is sufficient to protect its interests given the facts of the debtor’s financial circumstances”). Further, courts have recognized that, in determining what constitutes “adequate” assurance, a bankruptcy court must “focus upon the need of the utility for assurance, and . . . require that the debtor supply no more than that, since the debtor almost perforce has a conflicting need to conserve scarce financial resources.” Va. Elec. & Power Co. v. Caldor, Inc., 117 F.3d 646, 650 (2d. Cir. 1997) (emphasis in original) (quoting Penn Jersey, 72 B.R. at 985). 17.

As set forth above, § 366 only prevents the Utility Companies from terminating

utility service to the Company for the first twenty (20) days of this case. If the Company loses utility service, the Company will be unable to maintain even a minimal level of administrative functions, and the Company’s business and the value of this estate will be irreparably harmed. If faced with imminent termination of utility services, the Company would be forced to pay whatever amounts are demanded by the Utility Companies and seek emergency relief from this Court to avoid the cessation of essential utility services and a severe disruption.

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Here, establishing the Utility Deposit Account, consisting of a substantial cash

reserve which corresponds to the Company’s estimated two months consumption, provides adequate assurance of post-petition payment under § 366(c) of the Bankruptcy Code. In addition, the Adequate Assurance Procedures set forth in this Motion, whereby any Utility Company can request additional adequate assurance if it believes there are facts and circumstances that would merit greater protection, provide an orderly process for giving adequate assurance of payment to the Utility Companies without risking irreparable harm to the estate. 19.

In addition to the express statutory authority set forth in § 366, § 105(a) of the

Bankruptcy Code provides that the Court “may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” The purpose of § 105(a) is “to assure the bankruptcy courts power to take whatever action is appropriate or necessary in aid of the exercise of their jurisdiction.” See 2 Collier on Bankruptcy ¶ 105.01 (15th ed. 2004). 20.

The Company respectfully requests that the Court use its § 105(a) power to grant

the relief requested in this Motion because such relief is necessary to permit the Company to comport itself in Chapter 11 and preserve value for the benefit of the estate. 21.

Accordingly, based on the foregoing facts and authorities, the Company

respectfully submits that the relief requested in this Motion should be granted. Request for Expedited Consideration 22.

Pursuant to Bankruptcy Rule 6003, the Court may grant relief regarding a motion

to use, sell, lease or otherwise incur an obligation regarding property of the estate within twentyone (21) days after the filing of the petition if the relief sought is necessary to avoid immediate and irreparable harm. Pursuant to Local Rule 9013-1(g), the Court may consider this Motion on an expedited basis where exigent circumstances are present justifying such relief. As set forth 4262091-1

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above, the value of the Company and its estate could suffer immediate and irreparable harm absent the relief requested in this Motion. Accordingly, the Company respectfully requests the entry of the Interim Order, in substantially the form affixed hereto, granting the relief sought in this Motion in connection with the "first day" hearings in these proceedings. 23.

The Company further seeks relief from the fourteen (14) day stay of the Interim

Order and Final Order granting this Motion pursuant to Bankruptcy Rule 6004(h), to the extent such Bankruptcy Rule is applicable, and requests that the Interim Order and Final Order be effective immediately upon entry thereof. Notice 24.

The Company has served this Motion by the Court’s ECF System, facsimile,

overnight courier and/or electronic mail on (a) the Utility Providers listed on Exhibit “A,” (b) taxing authorities, (c) the 20 largest unsecured creditors, (d) the Office of the United States Trustee, and (e) all parties who have filed a notice of appearance in this case. In light of the relief requested herein, the Company submits that no other or further notice is required. No request for the relief requested herein has been made to any other Court. WHEREFORE, the Company respectfully requests that this Court enter the Interim Order and Final Order (i) prohibiting the Utility Companies from discontinuing, altering, or refusing service to the Company except as set forth in the Interim Order and Final Order; (ii) deeming the Utility Companies to be adequately assured of payment on the basis of the establishment of the Utility Deposit Account; (iii) establishing the Adequate Assurance Procedures as the exclusive method for resolving requests for additional assurance by Utility Companies; (iv) scheduling a final hearing on the Motion; and (v) granting such other and further relief as is just and proper.

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Respectfully submitted, NEW ENGLAND COMPOUNDING PHARMACY, INC., By its attorneys,

Dated: December 21, 2012

/s/ Daniel C. Cohn Daniel C. Cohn, Esq. BBO #090780 Keri L. Wintle, Esq. BBO #676508 Murtha Cullina LLP 99 High Street, 20th Floor Boston, MA 02110 (617) 457-4000 Telephone (617) 482-3868 Facsimile [email protected] [email protected] Proposed Counsel to New England Compounding Pharmacy, Inc.

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