Hawthorne Race Course - Chapter 11 Plan Terms

Plan Terms

Overview

• Hawthorne Race Course, Inc., its three affiliated debtors (Carey Heirs Properties, LLC; Suburban Downs, Inc.; and Post Time Catering, Inc.) and the official committee of unsecured creditors filed a joint plan of liquidation on Oct. 7, 2026. The plan takes the form of a combined disclosure statement and Chapter 11 plan, and it transfers all remaining estate assets to a liquidating trust for the benefit of creditors.
• General unsecured creditors in Class 4 are the only impaired class and the only class that votes. They share pro rata in the cash the trustee determines is available to them, capped at 100% of allowed claims plus postpetition interest at the federal judgment rate. Administrative and priority claims are paid in full in cash, secured claims are left unimpaired, and equity holders keep their interests but receive no property on account of them.
• The debtors filed Chapter 11 on Feb. 27, 2026. The U.S. Trustee appointed the committee on March 11, 2026, and amended the appointment on March 12.
• Buffey E. Klein of Blank Rome LLP will serve as liquidating trustee. A three-member oversight committee of Latto Capital LLC, W.E. O'Neil Construction Company, Inc. and The New York Racing Association, Inc. will supervise her.
• The plan contains no debtor or third-party releases of claims. It preserves all estate causes of action, including commercial tort claims against current and former directors and officers and tortious interference claims tied to the debtors' business operations or the racecourse property sale process.
• The debtors are substantively consolidated for plan purposes only. The effective date can occur no earlier than Dec. 31, 2026.
• Timothy S. Carey signed the plan as president of each debtor, and Jack Jeziorski signed as committee chair.

Unclassified Claims

• Administrative expense claims and priority tax claims are paid in full in cash on the later of the effective date and the date the claim is allowed.
• Final applications for professional fee claims are due 45 days after the effective date unless the debtors or the trustee agree otherwise. Allowed professional fees are paid in cash after the effective date or allowance, but only once cash becomes available to pay them. Certain of the debtors' and the committee's professionals hold liens granted under a court order entered Aug. 6, 2026 (D.I. 481). After the effective date, professionals are paid in the ordinary course without court approval.
• The debtors pay U.S. Trustee fees incurred before the effective date on that date, and the trustee pays them after that. Despite the consolidation, each debtor remains liable for quarterly fees until its own case is closed, dismissed or converted to Chapter 7.

Classification and Treatment

• Class 1, priority non-tax claims (unimpaired, deemed to accept): paid in full in cash from a claims reserve account on the later of the effective date and allowance, unless already paid or the holder agrees otherwise.
• Class 2, Crestwood property tax claim (unimpaired, deemed to accept): this is the Cook County Treasurer's secured claim for unpaid real estate taxes on the Crestwood property at 5065 Cal Sag Road (also known as 13148 Rivercrest Drive), Crestwood, Ill. On the later of the effective date and the closing of a sale of the Crestwood property, it receives cash equal to the allowed claim (which may come from sale proceeds), reinstatement or other treatment that leaves it unimpaired.
• Class 3, Carey Trust secured claim (unimpaired, deemed to accept): most significantly, the claim held by the Marital Trust of Robert F. Carey Jr. dated Nov. 15, 1987, will not be paid, reinstated or otherwise satisfied until it is allowed. Allowance can come only through the plan or a final order, not through scheduling, confirmation, consummation or the effective date. The trustee may object with no deadline, including on grounds related to the claim's creation shortly before the petition date. If allowed, the claim receives cash equal to the allowed amount (which may come from Crestwood sale proceeds), reinstatement or other unimpairing treatment. Payment comes on the latest of the effective date, the Crestwood sale closing and 10 business days after allowance.
• Class 4, general unsecured claims (impaired, entitled to vote): holders receive a pro rata share of distributable proceeds, meaning cash the trustee determines is available for Class 4.
  • Recoveries are capped at 100% of the allowed claim plus postpetition interest at the federal judgment rate in effect on the petition date, or another rate the court sets at the confirmation hearing.
  • After consulting the oversight committee, the trustee may delay any distribution whose cost is not justified by its size.
  • Contract rejection damages claims fall in this class. Intercompany claims are excluded from it and are disallowed under the consolidation.
  • Trustee compensation and other trust expenses are paid ahead of Class 4.
• Class 5, equity interests (unimpaired, deemed to accept): holders keep their equity interests but receive and retain no property on account of them. However, the plan's definition of subsequent distribution dates refers to distributable proceeds being distributed to holders of Class 5 claims.
• The debtors ask the court to confirm the plan under section 1129(b) for any impaired class that rejects it.
• After the effective date, the trustee may modify any allowed claim's treatment in a way adverse only to that holder, but only with the holder's consent.

Liquidating Trust

• On the effective date, all estate assets, including cash, causes of action and insurance policies, vest in the Hawthorne Race Course Liquidating Trust free and clear of liens, claims, encumbrances and interests, except as the plan or confirmation order provides. After that, the trust may use and dispose of those assets without Bankruptcy Code restrictions or court approval, except as the plan provides.
• The trust is a grantor liquidating trust for holders of allowed claims, who are treated as its grantors and owners for tax purposes. Beneficial interests are uncertificated, recorded only on the trustee's claims list, and cannot be transferred except by operation of law. The trust agreement is attached to the plan as a form, and the plan controls if the two are inconsistent.
• Buffey E. Klein serves as trustee without bond and owes the fiduciary duties of a trustee under Illinois law. She acts as the estates' representative under section 1123(b)(3)(B), with:
  • exclusive standing, including derivative standing, to bring all causes of action and to pursue any Rule 2004 proceedings the committee started
  • sole authority to object to claims
  • automatic intervention or substitution, as of the effective date, in pending adversary proceedings, contested matters and claim objections involving disputed claims or trust assets
  • the estates' attorney-client and work-product privileges, including those covering communications of the debtors' and the committee's professionals, although she must give the debtors at least seven days' written notice before agreeing to waive any privilege
• The trustee may hire professionals and other personnel without court approval. They need not be disinterested and may include professionals employed by any party in the cases, and their fees are paid as trust expenses without applying to the court. The trust also reimburses the debtors, the committee and their professionals for reasonable costs of cooperating with the trustee's requests for books and records.
• The trust has a five-year term from the effective date. With court approval sought within 60 days of the expiration of the initial term or any extension, the term can be extended by 12 months, but only after the trustee obtains an opinion of counsel or a favorable IRS ruling that the extension will not adversely affect the trust's grantor-trust status. The trust terminates once all of the following occur:
  • its expenses are paid
  • all objections to disputed claims are fully resolved
  • all causes of action are resolved, or the trustee determines further pursuit is unlikely to yield enough to justify it
  • all assets are distributed
  • the cases are closed or dismissed
  • final reports and tax returns are complete
• The trustee files quarterly post-confirmation reports 20 days after each quarter ends and semi-annual narrative reports within 30 days after June 30 and Dec. 31 of each year, though the trust agreement also states the first semi-annual report is due June 30, 2027. Beneficiaries may inspect the trust's books on written request, subject to a confidentiality agreement and at their own cost. The trust does not have to file accountings or get court approval to make distributions.

Pending Adversary Proceedings

• The plan carves out any pending cause of action asserting that specific funds or property are held in trust for, or belong to, a third party rather than the estates, including the pending adversary proceedings at Adv. Pro. No. 26-350 and Adv. Pro. No. 26-378.
  • Neither the plan, the confirmation order nor the vesting of assets in the trust decides, releases or otherwise affects the merits of those claims, which proceed in the ordinary course.
  • The claims in the two named adversary proceedings are expressly excluded from the plan's settlement of claims and controversies.

Causes of Action

• The plan preserves all estate causes of action and vests them in the trust. They include:
  • avoidance actions
  • commercial tort claims against any party, including the debtors' current and former directors and officers
  • claims for tortious interference with the debtors' business operations or with the racecourse property sale process
  • claims for breach of fiduciary duty, breach of contract and fraud
  • claims against the debtors' insurers
• The racecourse property is the improved real property at 3501 S. Laramie Ave. and 4950 W. 39th St. in Stickney, Ill., and 3700 S. Laramie Ave. in Cicero, Ill.
• The trustee needs oversight committee authorization to start or continue any cause of action.

Liquidating Trustee Compensation

• Periodic fee: $10,000 per month for the first 24 months of trust administration, then hourly at the trustee's then-prevailing rate.
• Contingent fee: 3% of gross recoveries to the trust, excluding:
  • matters settled, or subject to a settlement in principle, as of the effective date
  • asset sales completed or proposed by motion before the effective date
  • cash the debtors transfer into the trust
  • recovered security deposits
• The trust also reimburses the trustee's reasonable out-of-pocket expenses. All trustee compensation is paid from trust assets ahead of Class 4 distributions, without any further court order.

Oversight Committee and Approval Rights

• The oversight committee is made up of Latto Capital LLC, W.E. O'Neil Construction Company, Inc. and The New York Racing Association, Inc., none of which is paid for serving.
• Members must recuse themselves from matters in which they are not disinterested, but being affiliated with or employed by a claim holder, including a committee member, does not disqualify them. The remaining members fill vacancies from among general unsecured creditors. Members can be removed for cause by a majority vote or by court order at the request of any party in interest.
• Decision authority over the trust is tiered:
  • Under the trust agreement, the trustee may settle matters of $50,000 or less on her own business judgment.
  • Oversight committee approval is required for:
    • settlements of causes of action or disputes, and allowances of disputed claims, above $50,000
    • asset sales above $50,000 (the trust agreement sets this threshold at $100,000)
    • starting or continuing any cause of action
    • releases or indemnities for third parties beyond those in the plan
    • any material action the plan does not specifically authorize
  • Bankruptcy court approval is required for claim allowances above $75,000 under the plan and, under the trust agreement, for settlements of trust causes of action or disputes above $75,000 and for any release of an insider on behalf of a debtor's estate.
• The plan measures the oversight committee's settlement threshold by the amount in controversy, and measures the trustee's $75,000 authority to resolve claim objections without the court by the amount of the claim, though it elsewhere ties court approval to the allowed amount. The trust agreement instead bases its $50,000 and $75,000 tiers on the amount paid, received or allowed in the settlement.
• The oversight committee may remove the trustee for cause by unanimous vote. It must first give written notice and a chance to respond, and the removal cannot take effect until a successor is named. Cause includes:
  • unduly prolonging the trust or its distributions
  • gross negligence, fraud or willful misconduct, as determined by a final order
  • a physical or mental disability that substantially prevents the trustee from doing the job
  • an intentional breach of fiduciary duty or an unresolved conflict of interest
• The committee also fills any trustee vacancy, and if it does not, any member may ask the court to appoint a successor. The trustee may resign on 30 days' written notice.

Releases, Exculpation and Injunction

• The plan contains no debtor or third-party releases of claims. Under the trust agreement, any release of an insider on behalf of an estate needs court approval. Any release or indemnity the trustee grants a third party beyond those in the plan needs oversight committee approval.
• Under the trust agreement, exculpation covers the trustee, the oversight committee members and the trustee's hired professionals and personnel. It also covers their present and former affiliates, employees, advisors, attorneys and agents.
  • It applies to acts or omissions connected with the Chapter 11 cases, the pursuit of confirmation or plan implementation, except fraud, willful misconduct or gross negligence.
  • Personal liability applies only where a final order finds the conduct was solely due to gross negligence, willful misconduct, fraud or breach of fiduciary duty. A separate provision, however, says the trustee and committee members have no personal obligation for liabilities incurred in carrying out the agreement unless a final order finds their post-effective-date actions were solely due to their own fraud or breach of fiduciary duty, without the gross negligence and willful misconduct exceptions.
  • Acts taken with court approval or on the advice of counsel are conclusively deemed not to be fraud or a breach of fiduciary duty.
• The trust indemnifies the trustee, the oversight committee members, and their employees, hired professionals and representatives against claims arising after the effective date. The exception is conduct a final order finds was solely due to gross negligence, willful misconduct or fraud, plus breach of fiduciary duty for the trustee and committee members. The trust may buy errors and omissions insurance.
• From the effective date, the plan permanently bars holders of claims against or interests in the debtors from acting on those claims against the debtors, their estates or property, the trust or the trustee. The bar covers enforcing judgments, creating or enforcing liens, asserting setoff or subrogation, bringing actions inconsistent with the plan and interfering with its implementation.
  • The setoff bar excludes section 553 setoff rights that were valid and perfected as of the petition date, and the setoff rights the plan preserves for simulcast broadcast partners.
  • Stays and injunctions in effect on the confirmation date remain in force.

Distributions and Claims Administration

• After paying trust expenses and setting aside reserves, the trustee distributes the remaining cash pro rata to holders of allowed claims, in the plan's priority order.
  • The first distribution is made as soon as practicable, and later distributions come at the trustee's discretion.
  • The trustee sets distribution dates after consulting the oversight committee.
• Nothing is paid on the disputed portion of a claim until a final order resolves it. Payments are also withheld, up to the amount in dispute, on claims of holders facing trust avoidance actions that seek to disallow their claims.
  • The plan requires the trustee to reserve 100% of what disputed claims would receive if allowed, unless the court orders otherwise.
  • The trust agreement, by contrast, makes keeping a disputed claims reserve optional.
• The trustee has no deadline to object to claims, which the plan ties to the uncertain timing of any distribution to general unsecured creditors.
  • She may settle or withdraw objections without court approval for claims of $75,000 or less.
  • Claims that were paid, amended or superseded can be marked satisfied, adjusted or expunged on the claims register on 10 days' notice without an objection.
  • Late claims share only if a final order deems them timely on or before the confirmation date.
  • Claims transferred after the record date, which is the date the confirmation order is entered, need not be recognized.
• No cash is paid on an impaired claim whose total distribution is under $100, and the holder is barred from asserting it. Under the trust agreement, interim amounts under $100 are held back and paid once a holder's total reaches $100.
• Distributions still unclaimed or uncashed 90 days after they are made go back to the trust. Within 120 days after the final distribution date, they are donated to a 501(c)(3) charity the trustee picks after consulting the oversight committee; the trust agreement instead lets the trustee either deposit them with the clerk of court or donate them.
• The plan gives holders 90 days to return a Form W-9 the trustee requests, after which the distribution reverts to the trust and the related claim is disallowed.
  • The trust agreement instead requires a W-9 and an OFAC sanctions certification within 45 days of mailing.
  • Under the trust agreement, holders who miss that deadline forfeit distributions made before their forms arrive, and Class 4 holders share only in later distributions.
• Under the trust agreement, no postpetition interest accrues on claims except as bankruptcy law requires or the plan expressly allows, and distributions are allocated to principal first for tax purposes.

Setoff Rights

• Simulcast broadcast partners may net what they owe the debtors or the trust against what is owed to them under their simulcast or wagering agreements, whether the amounts arose before or after the petition date. This applies only to the extent enforceable under Illinois law (or whichever state's law governs the agreement) and other non-bankruptcy law.
• A simulcast broadcast partner is any non-insider that, as of the petition date, had a written agreement with a debtor to distribute, receive or exchange simulcast horse racing signals, wagering data or related wagering content for off-track betting or simulcast wagering.
• The provision grants no setoff right broader than non-bankruptcy law allows. The trustee may challenge the validity, amount or enforceability of any partner's setoff.
• The trustee may set off claims based on the debtors' books and records, and may set off against beneficiaries' distributions where the Bankruptcy Code or non-bankruptcy law allows. Not taking a setoff does not waive it, and the trust keeps the debtors' rights to subordinate claims.

Limited Substantive Consolidation

• The confirmation order consolidates the debtors as of the effective date for all plan purposes, including voting, confirmation, distributions and claim determinations. Their legal and corporate structures are otherwise unchanged.
• On the effective date:
  • assets and liabilities are pooled for distribution purposes
  • each claim against any debtor becomes a single claim against, and obligation of, all the debtors
  • intercompany claims are disallowed
  • guarantees by one debtor of another debtor's obligations are eliminated
  • distributions are deemed made by all the estates
• The plan serves as the motion for consolidation. If no creditor files a written objection, the court may enter the consolidation order, which may be the confirmation order. Any timely objection will be heard at or before the confirmation hearing.

Conditions, Amendment and Revocation

• The effective date is the later of Dec. 31, 2026, and the date the conditions are met or waived. It falls on a business day chosen by the debtors and the committee.
• Conditions:
  • Confirmation requires a confirmation order and plan supplement reasonably acceptable to the debtors and the committee, unless waived.
  • The effective date requires entry of the confirmation order and that order becoming final.
  • Of the effective-date conditions, only finality can be waived, and the debtors and committee may waive it without notice or a court order.
• The plan is void if the effective date does not occur.
• The debtors and the committee may modify the plan before confirmation, or revoke or withdraw it. If they revoke or withdraw it, the plan is void and nothing in it waives or releases claims by or against the debtors.
• The trustee may make material amendments to the trust agreement with court approval after notice and a hearing, but no amendment may adversely affect the trust's grantor-trust status. Technical amendments need no court approval.

Key Dates

• Petition date: Feb. 27, 2026
• Committee appointed: March 11, 2026, amended March 12, 2026
• Schedules filed: April 3, 2026
• Claims bar dates: June 30, 2026, for non-governmental claims; Aug. 26, 2026, for governmental claims
• Order granting liens to estate professionals entered: Aug. 6, 2026
• Plan filed: Oct. 7, 2026
• Effective date: no earlier than Dec. 31, 2026
• Notice of effective date: within two business days after the effective date
• Administrative expense bar date: the first business day that is 30 days after the effective date
• Final fee applications: 45 days after the effective date
• Damages claims from contracts rejected under the plan: 30 days after service of the notice of effective date, under the court's May 13, 2026, order. The plan's definition of the rejection bar date instead runs 30 days from the effective date.
• First semi-annual trust report: June 30, 2027
• Trust term: five years from the effective date, subject to extension

Executory Contracts and Insurance

• Executory contracts and unexpired leases that were not assumed before the confirmation date, and are not the subject of a pending motion to assume, are deemed rejected on the effective date. The resulting damages claims fall in Class 4 and are barred if not filed on time.
• All insurance policies stay in force, and insurers remain liable for claims and continuing coverage whether or not retrospective or other premiums have been paid. The plan does not change rights or coverage under the policies, and the debtors and the committee do not treat policies expired as of the effective date as executory contracts.

Wind-Down

• The committee dissolves on the effective date and its professionals' retention ends, except for final fee applications and any appeal of the confirmation order.
• After the effective date, the debtors continue for plan purposes, including winding up their affairs, filing tax returns and dissolving, and they pay dissolution costs from a post-effective date reserve. Any debtor not already dissolved is deemed dissolved on the final distribution date.
• After the effective date, the court will close the cases of every debtor other than Hawthorne Race Course, Inc. This happens once the trustee's counsel files a certification after consulting the U.S. Trustee. All later recourse against those debtors goes through the Hawthorne case.
• The trustee is discharged and the trust terminates once the cases are closed and the wind-down is complete.