Ban on Olympia & York Cash-Shifting Sought : Real estate: Creditors want to prevent the company from shoring up unprofitable developments with money generated from profitable ones.

Frustrated creditors of cash-strapped Olympia & York Developments Ltd. on Thursday asked a judge to prevent the company from using cash generated by healthy Canadian properties to underwrite losses elsewhere.

At a hearing on issues stemming from the real estate developer’s decision to file for protection from creditors last week, lawyers also asked Judge Robert Blair to separate out some of the properties covered by the filing.

Blair said he would rule on the issue of “commingling” assets May 28.

The world’s largest commercial real estate developer--crushed by huge debts, a downturn in rental markets worldwide and its unfinished Canary Wharf project in London--put its Canadian assets into protection May 14, filing under both Canadian law and Chapter 11 of the U.S. bankruptcy code.

The company has been trying to keep its valuable U.S. office towers and the Canary Wharf development out of bankruptcy proceedings.

Steve Miller, principal financial adviser to O&Y;, said in New York that the company wants to facilitate an orderly and fair long-term restructuring plan with all its creditors.

He said the company believes that its long-term net asset value is about $4.6 billion. But, he added, “the company has ended up out of cash and out of liquidity.”

Miller also admitted that the London development was draining the company.

“Canary Wharf is a good long-term investment, but it has drained the liquidity of the whole operation,” he told representatives of major bank lenders at a meeting in a New York hotel.

O&Y; representatives said the company formed a committee of creditors with 11 key financial institutions.

At the Toronto hearing, the front of the courtroom was filled with about 50 black-robed lawyers representing banks, insurance companies and investors.

Some lawyers complained that they had not gotten sufficient financial information from O&Y;, which until its crisis was run in near-secrecy by the billionaire Reichmann brothers of Canada.

“My client, like, I’m sure, a number of others, is walking in the dark,” a lawyer representing Bank of Montreal said.

O&Y; lawyer David Brown disputed that. He said the company has provided “tons of material” and has opened up document rooms to creditors.

Nevertheless, Blair ordered O&Y; to present a detailed one-week cash flow analysis by this afternoon.

Under a court ruling last week, now being challenged by creditors, O&Y; can skip payments until Oct. 21 while it attempts to resolve its cash crisis.

Brown, the O&Y; lawyer, said creditors’ concerns must be balanced with the need for the developer to carry on business during the restructuring process.

“In any form of reorganization, it is inevitable that the legal rights of all parties are going to be affected and that such an alteration may be imposed against the will of at least some creditors,” Brown said.

Some of the lenders were upset about the fact that O&Y; had apparently been supporting Canary Wharf, which is 40% vacant and only partially complete, with cash from North American assets, analysts said.

Although analysts said lenders could win the attempt to have court protection stripped from healthy buildings, they said it was unlikely that the court would overturn the bankruptcy filing entirely.