In re On-Site Sourcing, Inc.

On-Site Sourcing, Inc. (On-Site) (debtor) filed a chapter 11 bankruptcy petition in February 2009. On-Site filed several motions with the petition, including a motion seeking approval to sell substantially all of its assets to Integreon Discovery Solutions (DC), Inc. (Integreon) under 11 U.S.C. § 363(b). On-Site asserted that in 2008, financial troubles had rendered On-Site unable to pay its secured debts. Integreon had agreed to assume the role of On-Site’s secured lenders and negotiate a possible sale of On-Site’s business. In early 2009, On-Site’s secured creditors had assigned roughly $35 million in secured debt to Integreon. Further negotiations and discussions between On-Site and Integreon led to a proposed asset-purchase agreement (APA), under which Integreon would pay $28 million for substantially all of On-Site’s assets as a going concern (i.e., as a continuing business). In a debtor-in-possession (DIP) financing motion filed with the bankruptcy petition, Integreon, as the proposed DIP lender, proposed to loan On-Site $40 million so that On-Site could continue to operate while the sale was pending. The terms of the loan were favorable to Integreon and effectively ensured that no other creditor or administrative claimant would receive any distributions from On-Site. In the sale-approval motion filed with the bankruptcy petition, On-Site and Integreon sought a prompt asset sale on terms beneficial to Integreon. A committee of On-Site’s unsecured creditors reviewed the terms and approved the sale with modifications, including the establishment of a general-unsecured-creditors trust that ensured that the unsecured creditors would receive a distribution from the sale proceeds, while On-Site’s priority and administrative creditors potentially would receive nothing. This proposed distribution order went against the typical chapter 11 distribution scheme. The bankruptcy court orally approved the sale without the trust and issued an opinion supplementing its oral decision.