Approval of Zayat’s long and convoluted bankruptcy settlements

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Two settlement plans in bankruptcy cases involving Ahmed Zayat and his now disbanded Thoroughbred racing and breeding stable were approved on August 23, while no legal objections to the separate compromises were filed until a deadline set by the court.

The United States Bankruptcy Court (District of New Jersey) approvals marked the low-key end to the latest round of complicated and often intertwined international financial troubles for the mercurial and formerly high-profile owner and breeder of the 2015 Triple Crown champion. American Pharaoh.

But the two settlements will provide no meaningful compensation to the 132 unsecured creditors that Zayat, in his own Chapter 7 filing in 2020, admitted to owing $19 million of his debts.

Of these non-priority applicants, 112 are Thoroughbred trainers, horse farms, blood companies, veterinarians and equine transport companies. They were left largely adrift in the separate involuntary bankruptcy case filed against Zayat Stables.

In July, the court-appointed trustee in the involuntary bankruptcy case negotiated a settlement in which Zayat and his family members will pay $5 million to be split between MGG Investment Group and the trustee.

MGG is the lender that alleged in a 2020 lawsuit that Zayat and his family members obtained $30 million in loans through fraud and then never repaid much of that debt.

Of this Zayat Stables settlement, only $30,000 was allocated to unsecured creditors who are legally much lower on the totem pole to be paid. MGG will also receive a disbursement of funds from the bankruptcy trustee’s account in the amount of $1,025,145.

In Zayat’s personal bankruptcy case, the trustee negotiated a $1.5 million settlement in June to be paid by the debtor’s brother, Sherif Zayat. This compromise will allow Zayat and his family to continue living in an eight-bedroom, 7,714-square-foot home in Teaneck, New Jersey, which is currently valued at $2.6 million.

The trustee in the bankruptcy case had written in a June court filing that fighting the Zayats for the house was not worth the time and cost.

“While the trustee believes it would likely prevail over the claims against the debtor, parties Zayat and Sherif, the trustee wishes to settle the claims, in order to save the debtor’s estate time and money that would otherwise spent in litigation of the claims,” the filing reads.

Issues such as “the debtor’s potential homestead exemption, cost and time to apply for approval under [the] Bankruptcy code to sell NJ property, and the time and cost to avoid the [multiple mortgages]would consume money that could otherwise be applied to a settlement, the filing says.

When Zayat first filed for Chapter 7 bankruptcy protection on September 8, 2020, he wrote in court documents that he only had $300 in cash and $14.22 in two accounts. checks.

Throughout the legal ordeal, Zayat’s double bankruptcy filing has been overflowing with allegations of fraud.

In March 2021, MGG Investment Group told the bankruptcy court that “Ahmed Zayat is a perpetual liar determined to obstruct and obstruct the trustee, the court and the creditors at every moment.”

In July 2021, his Chapter 7 bankruptcy trustee alleged that Zayat and his family were engaging in a “continuing pattern of delay, obstruction and gambling.”

In July 2021, the attorney representing Zayat was cleared by a judge to withdraw from the Chapter 7 case based on Zayat’s alleged non-payment of $368,273 to his law firm.

In September 2021, the Chapter 7 trustee alleged that Zayat attempted to execute “fraudulent transfers” that resulted in “unjust enrichment” in the days before he filed for bankruptcy.

Throughout the nearly two-year bankruptcy proceedings, Zayat consistently denied engaging in any illegal activity or hiding money. He also insisted that neither he nor his family members were trying to interfere with the work of any of the administrators in charge of controlling his personal finances and business operations.

Money troubles and financial controversies were nothing new for Zayat, an Egyptian-born global drinks entrepreneur known for high-stakes deals before getting into horse racing.

In 2009, Fifth Third Bank sued Zayat for $34 million, alleging he defaulted on his loans. This lawsuit resulted in a 2010 federal bankruptcy court reimbursement settlement that also reorganized Zayat Stables.

At the time of this settlement, Zayat said in a statement that “Zayat Stables will emerge from this in a stronger financial position than ever before, and this will allow us to focus all of our energies on what is most important: nurturing, growing, and running. the next generation of great American horses.

Zayat, hot-headed and opinionated, seemed about to keep that vow when American Pharaoh captivated the sport in 2015.

But while the glow of this once-in-a-lifetime colt’s accomplishments was still warm, Zayat Stables was in deep financial trouble behind the scenes.

In 2016, Zayat reached an agreement with MGG to finance its existing debt through a series of loans totaling $30 million. In September 2019, Zayat reportedly began defaulting on these loans.

According to MGG’s lawsuit, the two parties began in late 2019 discussing liquidation proposals involving the sale of Zayat Stables’ equine collateral to discount payments.

But then the company discovered that from 2017 the Zayat family members had already started selling shares in the breeding rights and in the horses which, three years later, Ahmed Zayat claimed they were still on the books as collateral for its loans.

A January 2020 court order granted MGG’s motion to appoint a receiver “to take over, operate, preserve, maintain and care for” Zayat Stables. Eventually, all horses and assets were liquidated.

Yet even as Zayat faced dizzying financial difficulties, a court filing he filed in March 2021 all but boasted of allegedly lining up at least two global investment partners allegedly willing to pump in hundreds of millions of dollars. dollars in its failing race and bloodstock operation.

Most notably, Zayat claimed that in early 2020 he was on the verge – just days away – of securing a $100 million “equity injection” from an undisclosed entity in China that would have prevented MGG from prosecuting him.

And even as recently as this summer, when the bankruptcies were on the verge of reaching negotiated settlements, court documents indicated that Zayat had significant assets overseas. “The debtor owns an interest in a farm located in Egypt,” said a June 6 filing by the Chapter 7 bankruptcy trustee.

NDT attempted to reach Zayat via his last known active phone number on Wednesday to see if he would like the opportunity to comment on the settlements. No responses were received by the deadline for this story.

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