Filing Alert: Highlands Community Charter and Technical Schools Chapter 11

Update (October 5, 2026): A comprehensive case summary is now available for the Chapter 11 bankruptcy filing of Highlands Community Charter and Technical Schools.

Highlands Community Charter and Technical Schools, a Sacramento, CA-based public charter school providing adult education, high school diploma programs, and career technical training, filed for Chapter 11 protection on Oct. 4 in the U.S. Bankruptcy Court for the Eastern District of California.

The debtor attributes its filing to Report 2024-106, issued by the California Office of the State Auditor in June 2025, and to related charter revocation proceedings started by its authorizer, Twin Rivers Unified School District. The report found that HCCTS received approximately $186.5 million in funds for which it was not eligible. The central finding was that HCCS was ineligible for approximately $177 million in K-12 funding for 2022-23 and 2023-24. The report attributes this to unmet attendance requirements and the lack of a required state funding determination for certain non-classroom-based funding. The report does not allege fraud. The debtor disputes the resulting Audit Liability, which is the subject of an appeal set for hearing before the Education Audit Appeals Panel on Oct. 19, 2026. As of the petition date, the CDE had asserted overpayment claims of approximately $30.8 million against HCCS and $22.4 million against CICA and had withheld approximately $3.5 million of 2026-27 funding disbursements from the two schools. Following the audit, the debtor replaced its management and board and laid off more than 600 employees. Gross annual revenue was $152.7 million in FY2024-25 and is estimated at $24.6 million for FY2025-26.

On Jan. 27, 2026, the Twin Rivers District Board voted to revoke both charters. The Sacramento County Board of Education overturned the revocation on May 19, 2026, and Twin Rivers then appealed to the State Board. An ACCS hearing is scheduled for Oct. 6, 2026, and a State Board meeting for Nov. 12, 2026. According to the debtor, an adverse outcome at that meeting would end its funding immediately, and the schools would face closure absent court intervention. The debtor has funded professional fees from both disputes out of available cash. Prepetition attempts to negotiate a settlement with the CDE were unsuccessful.

The debtor is pursuing a dual-track process. The primary path is a reorganization that keeps the schools operating under the existing Twin Rivers charters until the schools and students can transfer to a new school under a new charter, while addressing the audit-related liabilities. The alternative is a going-concern sale. The debtor has applied for a new charter with the Yuba City Unified School District, combined with an appeal to the Sutter County Board of Education, which is scheduled to decide on Dec. 5, 2026. The debtor expects to file a plan within 30 days of that decision and to seek confirmation within 90 days of filing, with the transfer taking effect July 1, 2027. The debtor will file an adversary proceeding seeking a declaration that the automatic stay applies to the revocation proceedings or, in the alternative, a section 105 injunction. It expects to consent to termination of the Twin Rivers charters upon emergence. The debtor states that its plan would treat the Audit Liability materially better than a Chapter 7 conversion would. It also asserts affirmative claims against Twin Rivers for alleged oversight failures, including forfeiture of all or some of the $12.9 million in oversight and facility fees, and intends to use any proceeds for the benefit of creditors. The debtor's emergency cash use motion seeks authority to use cash in the ordinary course under an approved budget, authority for the State to recoup prepetition overpayments from future apportionments, and a finding that the equipment lessors, which hold approximately $31,265 of secured claims, are adequately protected.

Highlands Community Charter and Technical Schools reports $100 million to $500 million in both assets and liabilities. The filing indicates that there will be funds available for distribution to unsecured creditors. The case number is 26-25868.

Top Unsecured Claims

Key Parties

Counsel:

• Ori Katz
  Sheppard, Mullin, Richter & Hampton LLP
  Email: okatz@sheppard.com

Financial Advisor:

• Arch & Beam Global, LLC

Signatories:

• Jonathan Raymond – Executive Director

Bondoro Insights is continuing to monitor this case and will provide further coverage as appropriate.

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