DCEH entered receivership in January, shortly after unloading some of its remaining healthy assets in the deal involving Studio and an obscure nonprofit formed from a foundation previously controlled by Studio's investors. At the time, Dottore and the organization hoped to sell some of DCEH's remaining colleges. Argosy University had a potential buyer in an Ohio community college. Later, Dottore indicated there was interest in the remaining Art Institutes as well.
The organization entered receivership on the brink of insolvency. Its ambitious acquisition of for-profit operator Education Management Corp.'s colleges had started unraveling almost from the start. Chairman Randall Barton said in court papers that DCEH took on burdensome debt from EDMC and the for-profit's financial projections for the colleges were disastrously inaccurate. Within months of completing the acquisition, DCEH faced massive operating losses.
Receivership gave it breathing room as it looked to preserve and/or sell what remained of EDMC's higher ed empire. But the court process proved devastating as well. Most importantly, more than $13 million in student stipend money went unpaid, a mystery that remains unsolved. The U.S. Department of Education faulted Dottore for the missing stipends and cut off Argosy University's access to Title IV funds, forcing the closure of nearly all DCEH schools.
Unbeknownst to the court when it approved the receivership, the Ed Department had previously indicated to DCEH that receivership could potentially restrict, "and potentially impair," the ability of DCEH schools to draw on Title IV funds, Parker noted in his order Friday.
Receivership, as with previous cases of for-profits — including Education Corp. of America and Vatterott, which both closed — was for DCEH a way to bypass bankruptcy, which would have automatically cut off Title IV access.
In the case of DCEH, the organization's receivership faced several challenges, including from landlords who were owed hundreds of thousands in back rent and argued the process was legally invalid. Typically, secured creditors with a large stake sued for receivership to preserve a company's value (and their claim). In the case of Dream Center, a small unsecured creditor sued as part of a coordinated plan with the organization.
After the closures, DCEH failed to pay and provide benefits to many remaining employees — including faculty and student workers — for their final pay period. "The court has ordered the receiver to pay what he can of those expenses but has had to come to grips with the reality that the receiver has insufficient funds to satisfy all of the obligations he faces," Parker said.
