July 16 (Reuters) - Bankrupt hospital network Steward

Health Care received court approval on Wednesday to proceed with

a liquidation plan that aims to repay its creditors with the

proceeds of lawsuits against its former owners and insiders.

U.S. Bankruptcy Judge Christopher Lopez overruled objections

to Steward's bankruptcy plan at a court hearing in Houston,

Texas, despite uncertainty about Steward's ability to repay all

expenses it racked up during its bankruptcy.

Those expenses must be paid in full before a Chapter 11 plan

can take effect, and Steward expects to be able to fully repay

those costs by mid-2027. Several objectors had argued the

uncertainty of Steward's success in litigation and the long

delay between bankruptcy court approval and the payment of

necessary Chapter 11 expenses were fatal flaws in the company's

repayment plan.

Steward, once the largest privately owned health network in

the U.S., filed for Chapter 11 with $9 billion in debt, after

its former private equity owner sold the land under its

hospitals while embarking on an aggressive expansion strategy

across 10 U.S. states. Members of Congress and state health

officials have criticized the company for richly paying its

executives while cutting medical services for patients.

The company owed huge debts to both its primary landlord,

Medical Properties Trust ( MPW ), and to lenders that had extended

credit for Steward's hospital operations, and the dueling debts

complicated its efforts to sell the hospitals.

Objectors, including the state of Massachusetts, a group of

doctors who are losing deferred compensation benefits promised

by Steward, and the U.S. Department of Justice's bankruptcy

watchdog, had argued that Steward was prioritizing payment of

its bankruptcy lawyers over other mandatory expenses. Some

objectors suggested that some legal fees could be clawed back to

pay other creditors, such as vendors who continued to provide

medical services to Steward after it filed for Chapter 11.

Lopez rejected the idea that Steward's bankruptcy

professionals were "picking themselves over everyone else,"

saying that Steward's lawyers had prevented the complete

collapse of a 31-hospital network that served 2 million patients

annually, many of them in rural areas with few other healthcare

options.

While Steward was not able to save all of its hospitals,

most of them were transferred to new operators during the

bankruptcy, work that was "extremely challenging," Lopez said.

Steward's primary bankruptcy law firm, Weil, Gotshal &

Manges, billed more than $100 million from May 2024 to April

2025, and Steward is also responsible for other costs, including

$32 million billed by the lawyers and financial advisers of a

court-appointed committee that represents the interests of

Steward's junior creditors.

Steward will pursue more than $3 billion in legal claims

against a broad range of former insiders, insurers and creditors

that received payments from the company while it was collapsing

into bankruptcy. Steward estimates that it can fully repay its

Chapter 11 expenses if it recovers just 13% of its asserted

claims, and Lopez said Wednesday that its strategy seemed

feasible.

"You don't need a home run," Lopez said. "You just need a

couple of singles, but I don't know if you're going to get

them."

Lopez acknowledged that Steward's litigation strategy may

still fail, and he said he would have "no qualms" about

converting the case to a more straightforward Chapter 7

liquidation if the litigation is proceeding too slowly or if

Steward's expenses are higher than estimated.

Steward's largest legal claims are against its former CEO

Ralph de la Torre, its former private equity owner Cerberus

Capital Management and other insiders that allegedly set the

stage for Steward's downfall by loading it up with debt and

taking payments for themselves.

Steward sued de la Torre in Houston bankruptcy court on

Tuesday, saying that he and other former insiders "pilfered

Steward's assets for their own material gain, while leaving the

Company and its hospitals perpetually undercapitalized and

insolvent."

De la Torre, through a spokesperson, disputed the

allegations of wrongdoing in the lawsuit and said he will

vigorously defend himself. Cerberus did not immediately respond

to a request for comment, but it has previously said that

Steward was in good financial shape when it sold its ownership

stake in 2020.

During its bankruptcy, Steward closed some hospitals in

Massachusetts and Ohio. It sold some hospitals to outside

buyers, and handed others over to Medical Properties Trust ( MPW ) which

continued as landlord while putting new hospital operators in

place.

The case is In re: Steward Health Care System LLC, U.S.

Bankruptcy Court for the Southern District of Texas, No.

24-90213.

For Steward: David Cohen, Clifford Carlson, Gabriel Morgan,

Stephanie Morrison, Jeffrey Saferstein of Weil, Gotshal &

Manges; Ray Schrock of Latham & Watkins

For Massachusetts: Andrew Troop of Pillsbury Winthrop Shaw

Pittman

For the Office of the U.S. Trustee: Ha Nguyen of the Office

of the U.S. Trustee

Read more:

Bankrupt Steward Health puts its hospitals up for sale,

discloses $9 bln in debt

Steward Health gets approval for landlord settlement,

Florida hospital sales

US Senate probes Steward Health bankruptcy, subpoenas CEO

(Reporting by Dietrich Knauth in New York)