Federal and state tax claims against the former owners of the former Medical Park Hospital now exceed $12 million, among federal bankruptcy claims exceeding $20 million.

Federal and state tax claims against the former owners of the former Medical Park Hospital now exceed $12 million, among federal bankruptcy claims exceeding $20 million.

Two years after the hospital was bought in bankruptcy by the IASIS/Wadley Medical Center system, the resolution of the debts incurred by its former principal owners James Cheek and Herschel Brieg remain stalled in federal bankruptcy court with little prospect for collection.

“Once we sold the hospital, we converted to Chapter 7; and, there is now a U.S. trustee, and she is liquidating assets, mostly from what little receivables remain,” Jim Smith, Little Rock attorney for the estate of the hospital in bankruptcy, said in a telephone interview.

Smith has testified in bankruptcy hearings that at least $7 million in cash and assets cannot be found.

He said that there is little hope for recovery for the current 73 registered claimants from the original 690 claims filed against the assets of the estate.

That is, in part, because the largest of the claims against any funds is by the Internal Revenue Service, which has sought the payment of employee withholding taxes, with penalties and interest currently totaling $9.22 million from an original claim of $4.3 million.

Claims filed by the Arkansas Department of Finance and Revenue for sales and use taxes and the payment of employee withholding now total $3.11 million.

Based upon the updated register of claims filed by the U. S. Trustee in 2013, the total of secured claims against the estate of the hospital stands at $12.58 million, with $3.91 millon listed as “priority” claims from a total of $20.61 million in claims.

That includes a $1.8 million claim by a Louisville, Ky.-based investment group stemming from an original line of credit of $1.25 million in April, 2008.

According to the Uniform Commercial Code financing statement filed inDelaware in April, 2009, Cheek, acting as president of Shiloh Health Systems of Arkansas, Inc., and as its managing member, agreed to collateralize all of the accounts, receivables, payment intangibles and all other monies of Signature Medical Park Hospital, LLC, to TSF Investment Group, LLC, of Louisville, Ky.

The $1.25 million line of credit was to be amortized through March, 2015, at a fixed rate of 11 percent.

An interest schedule for the loan shows that Signature took three advances of that line of credit in May, 2008, totaling $750,000, another $250,000 in June, and the remaining $250,000 in July. By September, 2011, interest payments had accrued to $675,083.27, with interest and principal payments of $50,000, leaving a balance of $1.875 million.

TSF Investment Group, LLC's Arkansas attorney, Mark Hodge, of Little Rock, said in a telephone interview he could not comment on the case without the permission of his client.

“It has been a couple of years since I did anything in that case,” Hodge said.

Cheek and Brieg, were both former principals in Carraway Medical Systems, LLC, of Springfield, Mo., which owned Signature Medical Park Hospital, LLC, and Hope Medical Park Hospital, LLC, which owned Medical Park Hospital.

Both Cheek and Brieg were indicted in federal court in Texas in 2011 on seven counts of failing to render payroll taxes to the federal government for employees of Highland Medical Center in Lubbock, Texas; and, on one count each of embezzlement of funds from the Highland employee medical insurance plan.

Both men pleaded guilty to one count of the federal tax charges in U.S. District Court in Lubbock in February, 2012. Both men were sentenced to five years in federal prison, fined $10,000 each, given three years of supervised release and ordered to pay more than $5 million in restitution.