04/15/2008 12:00AM

ClassicStar headed to liquidation

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LEXINGTON, Ky. - ClassicStar's bankruptcy case has been converted from Chapter 11 to Chapter 7, which will lead to the former commercial breeding operation's liquidation.

Judge William Howard of the U.S. Bankruptcy Court, Eastern District of Kentucky, on Monday ordered ClassicStar's filing to be changed, allowing creditors to pursue all available ClassicStar assets through a trustee that they will elect at a meeting on May 15 in Lexington.

A major buyer and seller of Thoroughbreds at the start of the decade, ClassicStar filed bankruptcy last September. The Chapter 11 filing came in the wake of numerous lawsuits that disgruntled clients around the country filed over ClassicStar's complex mare-lease programs. Collectively, the former ClassicStar clients' lawsuits allege that the commercial breeder defrauded them of as much as $500 million through the mare-lease scheme and that the company touted the programs as moneymaking tax shelters when, in fact, the Internal Revenue Service had not approved them.

The IRS raided ClassicStar's Kentucky farm in 2006, and an investigation into the mare-lease programs is underway.

ClassicStar managing partner Tony Ferguson has filed suit against former executives David and Spencer Plummer, claiming they defrauded the company. The Plummers have publicly denied those charges and countersued. According to court documents filed this month in Lexington, ClassicStar's suit against the Plummers was key in the defunct company's opposition to converting its bankruptcy from Chapter 11 to Chapter 7.

"The Debtor wants to complete what it set out to do: bring some degree of order to this situation, provide a level playing field for its creditors, and maximize the amount of liquid assets in the estate," ClassicStar said in its objection to the conversion. "An essential part of that goal is the pursuit of the Debtor's claims against other parties - namely David Plummer, Spencer Plummer, and the company they were operating, referred to as 'Buffalo Ranch.'"

ClassicStar called the conversion "extremely detrimental, and probably fatal," to its ability to recover assets from the Plummers on behalf, ultimately, of its creditors.

ClassicStar's remaining assets appear to be limited. The company sold off much of its bloodstock at the 2006 Fasig-Tipton November mixed sale. Last June it sold two farms totaling 600 acres and about 50 mares, including champion Xtra Heat, to former CloverLeaf II Farm owner John Sykes. Sykes and Ferguson and their wives now co-own Woodford Thoroughbreds in Kentucky.

One valuable ClassicStar asset that could be in play is its share in popular first-crop sire Speightstown. The share, according to court filings, is valued at $600,000.

Court documents ClassicStar has filed show that, to date, creditors have filed 205 proofs of claim against the company that total $1,370,305,104.21.

"There aren't really any 'hard' assets for the Chapter 7 trustee to liquidate and then distribute the money out to the creditors," explained Elizabeth Thompson, a Stites and Harbison attorney who has represented the Official Committee of Unsecured Creditors, which supported the conversion.

"This Chapter 7 case will be about the Chapter 7 trustee pursuing claims against third parties, including insiders."

Courtney family business keeps on

When his father retired back in January after 67 years of breeding and selling horses, Robert Courtney Jr. said he would continue selling Thoroughbreds. In January, he hadn't decided whether to keep selling under the Courtney family's Crestfield Farm banner or in his own name. Now he's made his decision, opting to sell under the name of his 195-acre his nursery, Stonebridge Farm.

Courtney worked with his father for 31 years at Crestfield, which is now on the market for $3,175,000 through agent Bill Justice. The farm includes the main residence, five barns four large pastures and 14 paddocks on about 127 acres on Royster Road near Lexington.

"The business has been good to my family, and I want to continue to raise and sell good, honest horses," Courtney said. "I have approached this business with a hands-on philosophy, and I feel that if you take care of the horse, it will take care of you."