Magna Entertainment unsecured creditor seeks examiner to investigate insider relationships

By Caroline Salls

Pittsburgh, March 27 - Magna Entertainment Corp. unsecured creditor Greenlight Capital Offshore Partners asked the U.S. Bankruptcy Court for the District of Delaware to order appointment of an examiner for the company's bankruptcy case, according to a Friday court filing.

Greenlight said the appointment is justified "due to the numerous substantial pre-filing and post-filing insider transactions occurring."

The creditor also cited the "complex interrelatedness" between Magna, controlling shareholder MI Developments Inc., the MI Developments wholly owned subsidiary that is providing Magna's proposed debtor-in-possession financing and Frank Stronach, who is the chairman and chief executive officer of Magna and the chairman and controlling shareholder of MI Developments.

In addition, the unsecured creditor said MI Developments has been selected as the stalking horse bidder in the proposed sale of some of Magna's racing assets.

According to the motion, the DIP lender has made it clear that there will be no DIP financing if its parent is not the stalking horse bidder for the racing assets and that it strongly prefers MI Developments to any other bidder.

As a result, Greenlight said MI Developments is in control of the sale process and the lender's preferences will chill bidding and "impermissibly link the DIP financing to the sale process."

Greenlight said the examiner should be appointed to investigate whether there has been any mismanagement or breaches of fiduciary duty in connection with the insider relationships.

If the court decides not to order appointment of an examiner, Greenlight is asking it to appoint a trustee to oversee Magna's bankruptcy case.

A hearing is scheduled for April 15.

Magna, an Aurora, Ont.-based owner and operator of horse racetracks, filed for bankruptcy on March 5. Its Chapter 11 case number is 09-10720.

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