Case CSS Doc 16 Filed 08/26/14 Page 1 of 9 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case CSS Doc 16 Filed 08/26/14 Page 1 of 9 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: FCC Holdings, Inc., et al., 1 Debtors. Chapter 11 Case No (CSS) (Joint Administration Requested) MOTION OF THE DEBTORS FOR ENTRY OF AN ORDER AUTHORIZING THE DEBTORS TO CREDIT CERTAIN EXCESS FUNDS TO STUDENTS ACCOUNTS The above-captioned debtors and debtors in possession (collectively, the Debtors ) hereby move the Court (the Motion ) pursuant to sections 105(a), 363, 1107 and 1108 of title 11 of the United States Code, 11 U.S.C (the Bankruptcy Code ), for entry of an order substantially in the form of the proposed order annexed as Exhibit A, authorizing, but not directing, the Debtors to credit certain excess funds to students accounts in accordance with applicable law. In support of this Motion, the Debtors respectfully state as follows: Status of the Case 1. On the date hereof (the Petition Date ), each of the Debtors filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. 2. The Debtors have continued in possession of their properties and are operating and managing their business as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 3. No request has been made for the appointment of a trustee or examiner. A creditors committee has not yet been appointed in these cases. 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: FCC Holdings, Inc., a Delaware corporation (2598); Education Training Corporation, a Florida corporation (1478); High-Tech Institute Holdings, Inc., an Arizona corporation (4629); EduTech Acquisition Corporation, a Florida corporation (8490); and High-Tech Institute, Inc., an Arizona corporation (3099). The Debtors business address is 1000 Corporate Drive, Suite 500, Fort Lauderdale, FL

2 Case CSS Doc 16 Filed 08/26/14 Page 2 of 9 Jurisdiction, Venue, and Statutory Predicates 4. The Court has jurisdiction over this Motion pursuant to 28 U.S.C. 157 and Venue is proper in this district pursuant to 28 U.S.C This matter is core within the meaning of 28 U.S.C. 157(b)(2). 5. The statutory predicates for the relief requested herein are sections 105(a) and 363 of the Bankruptcy Code. Background 6. Before the Petition Date, the Debtors provided educational opportunities to approximately 10,000 active students in the proprietary post-secondary education space. The Debtors provided these services on 41 campuses and employed approximately 2,000 people. 7. Proprietary post-secondary education plays an important role in making education accessible to a variety of students that might otherwise not have the opportunity to obtain a quality education, including low-income students who cannot afford traditional college, students who are academically unprepared for traditional college, working students, and students who are single or stay-at-home parents. Proprietary post-secondary schools generally offer flexible schedules, online course offerings, and qualified faculty that are paid to teach courses rather than to conduct research. Throughout their history, the Debtors have been successful in providing education to many students and particularly to these non-traditional students. 8. The Debtors industry is highly-regulated, as they are subject to oversight by the U.S. Department of Education ( DOE ) as well as state regulatory agencies and national accrediting bodies. As proprietary post-secondary institutions, the Debtors rely on funding from the DOE pursuant to Title IV of the Higher Education Act of 1965, as amended, 20 U.S.C. 2

3 Case CSS Doc 16 Filed 08/26/14 Page 3 of et seq. ( Title IV ). Title IV funds accounted for nearly 90% of the Debtors revenue prior to the Petition Date. 9. As described in more detail in the First Day Declaration, prior to the Petition Date the Debtors liquidity was severely constrained. Due to certain regulatory issues the Debtors options were limited; however after investigating potential alternatives, the Debtors entered into that certain Amended and Restated Asset Purchase Agreement (the Purchase Agreement ) with IEC Corporation ( IEC ) on August 21, The Purchase Agreement contemplates a bifurcated transaction: (1) the sale of certain campuses that, due to regulatory issues, was substantially consummated pre-petition, although certain aspects of the sale (such as assumption and assignment of leases), are contemplated to be concluded post-petition and (2) a post-petition private sale of certain other campuses. 10. Along with the filing of these Chapter 11 Cases, the Debtors are filing their Motion of the Debtors for Entry of an Order (I) Approving Asset Purchase Agreement and Authorizing the Sale of Certain Assets of the Debtors Outside the Ordinary Course of Business; (II) Authorizing the Sale of Assets Free and Clear of All Liens, Claims, Encumbrances and Interests; (III) Authorizing the Assumption, Sale and Assignment of Certain Executory Contracts and Unexpired Leases; and (IV) Granting Related Relief (the Sale Motion ) in order to seek approval of and implement a somewhat unusual transaction which, given the regulatory issues affecting the Debtors business represents the only available opportunity to keep 28 campuses up and running (subject, in the case of 9 campuses, to further approval of the DOE), approximately 8,150 students educated, and approximately 1,500 people employed. In order to conclude the implementation of the transaction described in the Sale Motion, the Debtors commenced these Chapter 11 Cases. 3

4 Case CSS Doc 16 Filed 08/26/14 Page 4 of 9 Title IV Refunds The programs authorized under Title IV are the major source of federal student aid. Pursuant to applicable federal law, [w]henever an institution disburses title IV, HEA program funds by crediting a student s account and the total amount of all title IV, HEA program funds credited exceeds the amount of tuition and fees, room and board, and other authorized charges the institution must pay the resulting credit balance directly to the student no later than 14 days 34 CFR (e). Thus, if a student s financial aid exceeds the cost of tuition and other fees, the student is entitled to receive the excess to defray living and other educational expenses. In addition, if a student withdraws from a semester or drops out of an institution s education program, the institution may be required to return unearned Title IV funds to the government. 34 CFR (h). 12. Prior to the Petition Date, in the ordinary course of business, the Debtors incurred and processed Title IV Refunds to the students enrolled in their programs and the government when required. As of the Petition Date, checks for approximately $638,000 in Title IV Refunds had been issued to students; however, those checks had not yet cleared the Debtors accounts. In addition, the Debtors will continue to incur liability for Title IV Refunds from and after the Petition Date. Relief Requested 13. By this Motion, seek entry of an order, pursuant to sections 105(a), 363, 1107 and 1108 of the Bankruptcy Code, authorizing, but not directing, the Debtors, in their sole discretion, and in accordance with applicable law, to honor outstanding Title IV Refunds which were 2 The requirement to refund Title IV funds to either a student or the government is collectively referred to as a Title IV Refund ). 4

5 Case CSS Doc 16 Filed 08/26/14 Page 5 of 9 outstanding as of the Petition Date and to continue to process and credit the Title IV Refunds to students. Basis for Relief Requested A. Authority Exists to Continue the Title IV Refunds 14. Sections 1107(a) and 1108 of the Bankruptcy Code authorize a debtor in possession to continue to operate its business. Section 363(c)(1) of the Bankruptcy Code authorizes the debtor in possession operating its business pursuant to section 1108 of the Bankruptcy Code to use property of the estate in the ordinary course of business without notice or a hearing. 11 U.S.C. 363(c)(1). The purposes of section 363(c)(1) of the Bankruptcy Code is to provide a debtor in possession with flexibility to engage in ordinary transactions required to operate its business without unneeded oversight by its creditors or the court. In re Roth Am., Inc., 975 F.2d 949, 952 (3d Cir. 1992) ( Section 363 is designed to strike [a] balance, allowing a business to continue its daily operations without excessive court or creditor oversight and protecting secured creditors and others from dissipation of the estate s assets. ) (quoting U.S. ex rel. Harrison v. Estate of Deutscher (In re H&S Transp. Co.), 115 B.R. 592, 599 (M.D. Tenn. 1990)); In re Nellson Nutraceutical, Inc., 369 B.R. 787, 796 (Bankr. D. Del. 2007). The Debtors submit that continuing the Title IV Refunds in the ordinary course of business without interruption is permitted by sections 363(c), 1107(a), and 1108 of the Bankruptcy Code without further application to the Court. Notwithstanding the foregoing, out of an abundance of caution, the Debtors seek the Court s authorization, but not direction, to continue their Customer Programs. 15. With respect to the Debtors prepetition obligations under Title IV Refunds, section 105(a) of the Bankruptcy Code authorizes the Court to issue any order, process, or 5

6 Case CSS Doc 16 Filed 08/26/14 Page 6 of 9 judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]. 11 U.S.C. 105(a). The purpose of section 105(a) is to assure the bankruptcy courts [sic] power to take whatever action is appropriate or necessary in aid of the exercise of [its] jurisdiction. 2 COLLIER ON BANKRUPTCY (15th ed. rev. 2010). Thus, section 105 essentially codifies the bankruptcy court s inherent equitable powers. See U.S. ex rel. Gebert v. Transport Administrative Servs., 260 F.3d 909, 919 (8th Cir. 2001) (noting that section 105 gives bankruptcy courts the power to issue any order, process or judgment that is necessary and appropriate to carry out the provisions of [bankruptcy Title 11]. The Debtors submit that the relief requested in this Motion is critical to the Debtors and is justified under section 105(a) of the Bankruptcy Code. 16. It is beyond question that pursuant to applicable law the Debtors are obligated to pay the Title IV Refunds. In fact, if an institution is unable to disburse the Title IV Refunds to the student, applicable law provides that [n]otwithstanding any State law (such as a law that allows funds to escheat to the State), an institution must return to the Secretary, lender, or guaranty agency, any title IV, HEA program funds 34 CFR (h). The Debtors failure to pay the Title IV Refunds could have a severe impact on the Debtors as the failure to comply with applicable law could adversely impact the Debtors ability to receive funding pursuant to Title IV or could result in penalties or fines being asserted against the Debtors. B. Bankruptcy Rule 6003 Satisfied and Request for Waiver of Stay 17. The Debtors further submit that because the relief requested in this Motion is necessary to avoid immediate and irreparable harm to the Debtors for the reasons set forth herein and in the First Day Declaration, Bankruptcy Rule 6003 has been satisfied and the relief requested herein should be granted. 6

7 Case CSS Doc 16 Filed 08/26/14 Page 7 of Specifically, Bankruptcy Rule 6003 provides: Except to the extent that relief is necessary to avoid immediate and irreparable harm, the court shall not, within 21 days after the filing of the petition, grant relief regarding the following:... (b) a motion to use, sell, lease, or otherwise incur an obligation regarding property of the estate, including a motion to pay all or part of a claim that arose before the filing of the petition, but not a motion under Rule No court within the Third Circuit has interpreted the immediate and irreparable harm language in the context of Bankruptcy Rule 6003 in any reported decision. However, the Third Circuit Court of Appeals has interpreted the same language in the context of preliminary injunctions. In that context, irreparable harm has been interpreted as a continuing harm that cannot be adequately redressed by final relief on the merits and for which money damages cannot provide adequate compensation. See, e.g., Norfolk S. Ry. Co. v. City of Pittsburgh, 235 Fed. Appx. 907, 910 (3d Cir. 2007) (citing Glasco v. Hills, 558 F.2d 179, 181 (3d Cir. 1977)). Further, the harm must be shown to be actual and imminent, not speculative or unsubstantiated. See, e.g., Acierno v. New Castle County, 40 F.2d 645, (3d Cir. 1994). 20. The Debtors further seek a waiver of any stay of the effectiveness of the order approving this Motion. Pursuant to Rule 6004(h) of the Bankruptcy Rules, [an] order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of fourteen (14) days after entry of the order, unless the court orders otherwise. As set forth above, the relief requested herein is essential to prevent irreparable damage to the Debtors remaining operations and preserve the value of their assets. 21. Accordingly, the relief requested herein is appropriate under the circumstances and under Bankruptcy Rule 6003 and 6004(h). 7

8 Case CSS Doc 16 Filed 08/26/14 Page 8 of 9 Notice 22. Notice of this Motion has been given to the following parties or, in lieu thereof, to their counsel, if known: (a) the Office of the United States Trustee for the District of Delaware; (b) creditors holding the forty (40) largest unsecured claims as set forth in the consolidated list filed with Debtors petitions; (c) counsel to the Agent under the Pre-Petition Credit Agreement; (d) those parties requesting notice pursuant to Rule 2002; (e) the Office of the United States Attorney General for the District of Delaware; (f) the United States Department of Education; (g) the Internal Revenue Service; and (h) the Securities and Exchange Commission. As the Motion is seeking first day relief, within two business days of the hearing on the Motion, the Debtors will serve copies of the Motion and any order entered respecting the Motion in accordance with the Local Rules of the United States Bankruptcy Court for the District of Delaware. The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given. No Prior Request 23. No prior request for the relief sought in this Motion has been made to this or any other court. Conclusion WHEREFORE, the Debtors respectfully request that this Court enter an order granting the relief requested herein and that it grant the Debtors such other and further relief as is just and proper. [Signature on next page] 8

9 Case CSS Doc 16 Filed 08/26/14 Page 9 of 9 Dated: August 26, 2014 GREENBERG TRAURIG, LLP /s/ Dennis A. Meloro Dennis A. Meloro (DE Bar No. 4435) 1007 North Orange Street, Suite 1200 Wilmington, Delaware Telephone: (302) Facsimile (302) melorod@gtlaw.com -and- Nancy A. Mitchell (pro hac vice pending) Maria J. DiConza (pro hac vice pending) Matthew L. Hinker (DE Bar No. 5348) 200 Park Avenue New York, New York Telephone: (212) Facsimile: (212) mitchelln@gtlaw.com diconzam@gtlaw.com Proposed Counsel for the Debtors and Debtors-in-Possession 9

10 Case CSS Doc 16-1 Filed 08/26/14 Page 1 of 3 EXHIBIT A

11 Case CSS Doc 16-1 Filed 08/26/14 Page 2 of 3 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: FCC Holdings, Inc., et al., 1 Debtors. Chapter 11 Case No (CSS) (Joint Administration Requested) Ref. Docket No. ORDER AUTHORIZING THE DEBTORS TO CREDIT CERTAIN EXCESS FUNDS TO STUDENTS ACCOUNTS Upon the motion (the Motion ) 2 of the above-captioned debtors and debtors in possession (collectively, the Debtors ) seeking entry of an order authorizing, but not directing, the Debtors to pay the Tile IV Refunds; and it appearing that the Court has jurisdiction to consider the Motion pursuant to 28 U.S.C. 157 and 1334; and it appearing that venue of these cases and the Motion in this district is proper pursuant to 28 U.S.C and 1409; and it appearing that this matter is a core proceeding pursuant to 28 U.S.C. 157(b); and the Court having determined that the relief requested in the Motion is in the best interests of the Debtors, their estates, their creditors and other parties in interest; and it appearing that proper and adequate notice of the Motion has been given and that no other or further notice is necessary; and after due deliberation thereon; and good and sufficient cause appearing therefor, IT IS HEREBY ORDERED THAT: 1. For the reasons set forth on the record, the Motion is granted as set forth herein. 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: FCC Holdings, Inc., a Delaware corporation (2598); Education Training Corporation, a Florida corporation (1478); High-Tech Institute Holdings, Inc., an Arizona corporation (4629); EduTech Acquisition Corporation, a Florida corporation (8490); and High-Tech Institute, Inc., an Arizona corporation (3099). The Debtors business address is 1000 Corporate Drive, Suite 500, Fort Lauderdale, FL Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Motion.

12 Case CSS Doc 16-1 Filed 08/26/14 Page 3 of 3 2. The Debtors are authorized, but not directed to pay the Title IV Refunds in accordance with applicable federal laws and regulations. 3. Rule 6003(b) of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ) has been satisfied because the relief requested in the Motion is necessary to avoid immediate and irreparable harm to the Debtors. 4. Notwithstanding any applicability of Bankruptcy Rule 6004(h), the terms and conditions of this Order shall be immediately effective and enforceable upon its entry. 5. The Debtors are authorized and empowered to take all actions necessary to implement the relief granted in this Order. All of the Debtors banks are authorized to receive, process, honor, and pay any and all checks or electronic transfers related to this Order, whether presented before or after the Petition Date, provided that sufficient funds are on deposit in the applicable accounts to cover such payments and the banks may rely on the Debtors as to which checks to honor to effect the relief in the Motion. 6. The Court retains jurisdiction with respect to all matters arising from or related to the implementation of this Order. Dated:, 2014 The Honorable Christopher S. Sontchi United States Bankruptcy Judge 2