Rainbows United has settled the two remaining creditor objections in its bankruptcy proceeding, clearing the way for the nonprofit child services group to file a reorganization plan late this year. That means Rainbows could emerge from bankruptcy as early as March 1.
Attorneys for the Internal Revenue Service and South Central Kansas Education Center announced the settlement Tuesday in U.S. Bankruptcy Court.
"It's a good day for us because it allows us to proceed with our plan, which gets us one step closer to coming out of bankruptcy and one step closer to completing the mission for our kids," said Hale Ritchie, Rainbows' chief restructuring officer and operations chief.
"The message to the public is that this is almost behind us. We still have a ways to go, but we're working diligently."
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Attorneys for both creditors were reviewing proposed settlement orders Tuesday afternoon, said Ed Nazar, Rainbows' bankruptcy attorney. Once the details of the settlement are worked out, the orders will be filed with the court.
Wichita attorney Linda Parks, representing the South Central Kansas Education Center, which is owed $450,000, said her client "is not whole" but said its objection has been addressed.
"They are receiving some funds and the theory is a significant amount of money will be paid to them over eight years, which is difficult for a small entity like this one is, but everybody is doing their best to make this work," Parks said.
One large client, the Sedgwick County Commission, signed back on with Rainbows in September, authorizing a $520,000 children's services contract.
County Commissioner Tim Norton said Tuesday that he's "glad that someone we partner with and fund will regain their stability and continue their mission."
Next up for Rainbows is a reorganization plan, said Nazar, a Wichita-based bankruptcy specialist.
That plan should be filed by early January, with court review and a creditor vote in early 2010, Nazar said.
In the meantime, Rainbows will negotiate repayment plans on its bank loans, which total almost $4 million.
Should the court and creditors approve the reorganization plan, Rainbows could emerge from bankruptcy as early as March 1, Nazar said.
"That's very important to our mission," Ritchie said, "because going forward is about serving as many special-needs kids as we can.
"It has everything to do with the private funding sources that are available because coming out of bankruptcy makes it easier to access private funding. It's very important, or I wouldn't be here."
Rainbows, which has served special-needs children and their families for nearly 40 years, filed for Chapter 11 bankruptcy reorganization protection in late July after board members discovered "financial irregularities" in the agency's financial reports.
Those included more than $2.3 million in unpaid federal withholding taxes to the IRS. The agency also has more than $2.3 million in bank loans and around $800,000 in accounts payable.
On July 31, it received bankruptcy court approval to borrow another $1.5 million from Emprise Bank and other banks to stay open during the bankruptcy.
At the time of the filing, Rainbows announced the resignation of its chief financial officer, Scott Richards.
President Lorraine Dold was placed on administrative leave in late July and fired less than a month later.
The agency is selling the Ritchie Family Center at 251 S. Whittier and the Family Enrichment Center at 340 S. Broadway, the latter under a leaseback contract that should close in three weeks, Nazar said.
In addition, it has laid off 81 staffers, Ritchie said, consolidating services at its Kids' Cove at 2258 N. Lakeway Circle and Kids' Point at 3223 N. Oliver.
Ritchie said Rainbows remains immersed in a full-scale review of its programs and business practices. Also, major funding partners are briefed monthly on the progress of the bankruptcy.
"I'm a firm believer that we can stand to lose money on some programs as long as we get them funded," Ritchie said. "It involves putting some business principles into the deal, but it also involves staying true to the core mission of Rainbows.
"We very obviously were losing money or we wouldn't be in this process. We've got to figure out where and change those activities."