Trustee Backs Plan for MEC Examiner
by Ryan Conley
Date Posted: 4/16/2009 12:12:39 PM
Last Updated: 4/17/2009 3:50:07 PM

The Office of U.S. Trustee is backing a shareholder’s demand to install an independent examiner as an overseer of transactions related to Magna Entertainment Corp.’s bankruptcy reorganization, a move which the horse racing company claims will be detrimental to various interests.

U.S. Trustee Roberta A. DeAngelis in an April 15 filing asks the U.S. Bankruptcy Court in Delaware to appoint the independent examiner recently requested by activist shareholder Greenlight Capital.

The trustee, who appointed the unsecured creditors committee representing the estimated 10,000-plus individuals and entities owed money by MEC, said bankruptcy-related financing and auction transactions proposed by MEC’s parent, MI Developments, were “rife with the possibility of abuse.”

“Before proceeding with an asset sale to an insider, pursuant to a sale process that appears to have been designed by and for the benefit of insiders, there should be an investigation of, among other things, the fairness of the proposed process to the estates,” the filing said.

Greenlight, which has unsuccessfully sued MID and chairman Frank Stronach in Canadian court for alleged shareholder oppression, is among other creditors objecting to MID’s proposal’s for $64.5 million in debtor financing and a $195-million baseline bid for certain MEC assets.

Motions on those proposals, as well as MEC’s plan to sell the remainder of its assets through July court auctions, are scheduled to be heard April 20 in a Delaware bankruptcy court. MEC filed for Chapter 11 protection March 5.

The trustee agreed with various objectors’ assertions that Stronach’s influence as chairman and indirect controlling shareholder of both MID and MEC was too strong to overlook, and believes an investigation by an independent court-appointed examiner is in the “best interests of creditors, equity security holders and other interests of the estate.”

“Appointing an examiner to perform such an investigation will aid the court in ensuring the fairness of the proposed sale procedures on an ongoing basis and ensuring the bona fides of the asset sale, even if the assets are ultimately sold to an insider,” the trustee filing said.

MEC in response to the appointment motion filed by Greenlight, argues the hiring of restructuring specialist Gregory Rayburn as its new chief executive officer will ensure fairness to the Chapter 11 process and save unnecessary expenses. MEC also accuses Greenlight of requesting the appointment to serve the investment company’s own interests.

“The appointment (of an examiner) would be redundant and cause the debtors' estates to needlessly expend, at the expense of their economic stakeholders, additional resources to comply with Greenlight's litigation tactics,” MEC said in its filing. “The debtors submit that Greenlight should not use this court and the debtors as pawns in Greenlight's ever expanding game of chess with MID to advance Greenlight's own interests to the detriment of MEC creditors.”

MEC separately filed with the court April 15 a 19-page summary outlining more than 40 objections raised by 15 separate creditors in regard to financing and auction proposals. In short, MEC claims it has made some concessions to the objections, while holding to its beliefs that its proposed processes are in the best interest of the estate.

Of note, MEC claims the objections of Churchill Downs Inc. over the possible sale of its interests in TrackNet Media Group and HRTV are premature.

“There is nothing in the bankruptcy code that inhibits non-debtor parties from selling their assets,” said MEC, which has not included its TrackNet and HRTV interests in the bankruptcy. “The debtors submit that any rights Churchill Downs may have will only arise if an acceptable bid is tendered, and therefore, any objection at this time is improper.”
 



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