Court Approves Settlement Won by Kramer Levin on Behalf of Unsecured Creditors in Magna Bankruptcy

On Monday, January 11, 2010, the Official Committee of Unsecured Creditors of Magna Entertainment Corporation announced that it had entered into a settlement with defendants in an adversary proceeding the Committee had initiated in July, 2009. On April 26, 2010, the Court ruled that it would approve the settlement as part of Magna Entertainment's overall plan of reorganization. The Committee's adversary proceeding, which was prosecuted by Kramer Levin, alleged breaches of fiduciary duty by certain officers and directors of Magna Entertainment, and sought to recharacterize or equitably subordinate loans made by MI Developments to Magna Entertainment and its subsidiaries. In assessing the fairness of the Committee's settlement for creditors, the Court called the Committee's handling of this case "phenomenal", ruling that the terms of the settlement were not only fair but were decidedly to the advantage of the creditors.

Under the terms of the settlement, in exchange for the dismissal of the action and a full release of MI Developments and its affiliates, the unsecured creditors of Magna Entertainment will receive $89 million in cash plus $1.5 million as a reimbursement for certain expenses in connection with the action. The creditors will also receive $20 million from the sale of Magna Entertainment's Lone Star track. Further, in connection to previously announced asset sales, Magna Entertainment's unsecured creditors will receive certain proceeds from the sale of Thistledown, a track in Ohio. The Committee values its total potential recovery to be approximately $130 million.

Kramer Levin's bankruptcy team was led by Kenneth H. Eckstein and Joshua Brody. Many others at Kramer Levin contributed to the successful result, including partners Gregory Aaron Horowitz and Jeffrey S. Trachtman, special counsel Michael Martinez and associates Craig L. Siegel, Peggy J. Farber, Guilaine Senecal, Joel Taylor, Nicole Foley, Juliana Oliveira and Matan A. Koch.

Law360 reported on the approved reorganization plan.