The trustee of the personal bankruptcy case filed by Ahmed Zayat, who bred and campaigned 2015 Triple Crown champion American Pharoah, asked the bankruptcy court to approve a settlement of his interest in the bankrupt estate on June 7.
Chapter 7 bankruptcy seeks a discharge of debts, not a restructure. As trustee, Donald V. Biase is charged with overseeing the liquidation of Zayat's assets and making payments to creditors. Biase is asking for approval of a settlement that entails a payment of $1.5 million into his office, mostly for the benefit of creditors. The amount does not include secured claims that might or might not be enforced in cases outside the context of the bankruptcy case.
Schedules in Zayat's Chapter 7 bankruptcy petition named more than 100 creditors, assets worth almost $1.9 million and liabilities of over $19 million. According to Biase's filing with the court, the source of the settlement payment, $1.5 million, would be paid by Zayat's brother Sherif Zayat.
In exchange for the payment, Biase would dismiss claims he brought against Zayat to block his discharge in bankruptcy based on allegations of wrongdoing as well as disputes with Sherif Zayat and Zayat's children; a claim against equity in the Zayat mansion in Teaneck, N.J.; claims against mortgages deemed "avoidable," or subject to being set aside, known as the Sherif Mortgage, the Leicht Mortgage and the Karasick Mortgage against the residence; claims against certain valuable personal property in the residence; a claim against an ownership interest in a farm in Egypt; and other potential claims.
A hearing on the motion before Judge Vincent F. Papalia of the U.S. Bankruptcy Court for the District of New Jersey is set for July 6. Objections must be filed and served on the trustee at least seven days prior.
Biase argues that the proposed resolution of the case "falls within the range of reasonableness" and is fair and in the best interests of the bankrupt estate.
Zayat filed for bankruptcy protection in September 2020 in the midst of a barrage of civil claims filed in Kentucky that included fraud allegations made against him and his son, Justin Zayat. Chief among his personal assets at the time were the New Jersey residence, valued by Coldwell Banker at $4.5 million and by an appraiser at $3.575 million. Personal property at the residence was valued at about $79,000 if subjected to a forced sale.
Claims for first and second mortgages against the property, undisputed by Biase, total $3.4 million; Linda Kasarick claims $125,000 owed on a third mortgage; Andrew Leicht claims a first mortgage of $400,000, which is being litigated by Biase; and Sherif Zayat claims a $500,000 mortgage recorded less than a month before Zayat filed bankruptcy.
Zayat's wife did not join in the bankruptcy petition and owns half the New Jersey residential property. Biase reasons that even if the property were valued and sold for $4.8 million, and assuming the disputed mortgages were eliminated, after paying the two undisputed mortgages and a realtor's commission, only $1.16 million of equity would be left, with Zayat's interest worth half that amount, or $580,000.
The Zayat personal bankruptcy is separate from the bankruptcy case of Zayat Stables, in which MGG Investment Group is a principal creditor after lending $30 million to Zayat's breeding and racing operation in 2016 and obtaining judgment for over $24 million in Fayette Circuit Court in Lexington, Ky., in 2020. The petition in that case lists assets of approximately $4 million, secured debt of $22 million and $4 million of other debt.
MGG recently complained to Papalia that a settlement it reached earlier this year in the Zayat Stables bankruptcy was derailed in favor of a settlement of Zayat's personal bankruptcy case and asked the judge to mediate or facilitate a mediation to resolve the matter. Papalia ordered a telephone conference to take place June 7 among counsel, but as of the publication of this story, the court record does not indicate Papalia took any action on the request.
Among creditors named in Zayat's personal bankruptcy petition were eight trainers: Rudy Rodriguez (debt stated to be $394,437); Richard Baltas ($316,070); Bob Baffert ($227,884); Brad Cox ($194,836); Todd Pletcher ($125,560); Mike Maker ($120,922); Steve Asmussen ($102,541), and D. Wayne Lukas ($8,157).
Among many other debts listed in the bankruptcy schedules is $57,000 owed to Rood and Riddle Clinic based in Lexington, comprising a part of various debts owed to different veterinary clinics nationwide totaling $390,000. Brook Ledge Horse Transportation was on the hook for $163,000.
Zayat's personal bankruptcy petition lists six attorneys as his counsel of record. Biase is shown to be represented by eight attorneys during different stages of the case, including lawyers based in New York City, Miami, various locations in New Jersey and Cairo, Egypt.
