By T. D. Thornton
Attorneys representing MGG Investment Group, LP, which is the plaintiff in a $24.5 million Kentucky civil lawsuit alleging fraud and loan defaults against Ahmed Zayat and his family's Zayat Stables, LLC, disclosed in a legal document filed Sept. 18 that the court-appointed receiver in that case intends to hold a November auction to sell off horses that are being held as collateral against the unpaid debts.
News about this anticipated November auction was made public in the form of a letter dated Friday and filed in United States Bankruptcy Court, District of New Jersey (Newark) by MGG's counsel.
That letter pertains to a separate court proceeding initiated Sept. 14 by three other creditors who are attempting to force an “involuntary bankruptcy” petition against Zayat Stables. If the forced bankruptcy moves forward, it could keep MGG (and other creditors who are not part of either court action) from collecting on debts that MGG claims are backed by its own “first priority perfected security interest in all of Zayat Stables' personal property, equine collateral, accounts and proceeds.”
Complicating matters further, Zayat himself (as an individual, not as his racing stable) filed for Chapter 7 protection Sept. 8 in a federal bankruptcy court in New Jersey, claiming to be $19 million in debt. And within that filing, the insolvent 2015 Triple Crown-winning breeder and owner disclosed that he is a party to three other active lawsuits involving money woes.
So right now the tangled financial mess involves numerous creditors jockeying for position to secure spots in a disputed pecking order that could determine which might be first to recoup proceeds from the Zayat horses held in the Kentucky receivership.
That's important, because the federal court with jurisdiction in Zayat's personal bankruptcy has already notified the 132 non-priority, unsecured-claim creditors in that case that “no property appears to be available to pay creditors.” So reaping proceeds from the sale of Zayat Stables' horses appears to be the only means for some of the creditors to get paid.
The Sept. 18 letter from MGG's attorneys was an attempt to slow down the process in the forced bankruptcy attempt. The day before, the three petitioning creditors in that involuntary bankruptcy case (Zayat's former financial advisor is one of the parties) filed an Application for Order Shortening Time, in which they requested that an expedited hearing be set for Sept. 22.
“We are writing to request that any hearing on the Motion be scheduled for no earlier than Sept. 29 as the Petitioning Creditors have not presented any emergent circumstances that would require a hearing to be held as quickly as Sept. 22,” the MGG counsel wrote.
“The underlying premise of the Motion appears to be the Petitioning Creditors' dissatisfaction with a Kentucky State Court receivership proceeding commenced by MGG on January 22, 2020 in the Fayette Circuit Court, in which Elizabeth Z. Woodward has been appointed receiver. The Receivership proceeding, which has been pending for almost eight months, has been heavily contested by Zayat Stables, which has not only failed in its efforts to date to get the Receivership dismissed, but has suffered the entry of judgment against it in the amount of $24,534,166.13.
“Substantially all of the 'issues' raised by the Petitioning Creditors in support of their Motion have already been advanced in the Receivership by Zayat Stables, to no avail.
The Receiver and her retained professionals have, under contentious circumstances, made substantial progress in monetizing Zayat Stables' assets in a manner typical for the liquidation of equine collateral and consistent with accepted industry practices.”
The letter continued: “We are informed that the Receiver does not anticipate selling any of the horses or other components of MGG's Collateral until a scheduled auction in November 2020, to be conducted by a recognized Thoroughbred auction house, such as Keeneland; nor will any of the proceeds of the MGG Collateral being held or to be collected by the Receiver be disbursed other than for the ordinary course care and maintenance of the Zayat Stables' horses.
“Notwithstanding that MGG has a first priority security interest in all of the assets that the Receiver is charged with liquidating, and notwithstanding the fact that MGG has made substantial protective advances to the Receiver to preserve the MGG Collateral, MGG will not seek the Receiver make any distributions to MGG until there has been a disposition of the Motion or a further order of this Court,” the letter concluded.