O&Y; Wants to Sell Some Canadian Assets : Real estate: Banks and bondholders of the beleaguered developer object strongly to the proposal. U.S. properties have been spared so far.

Olympia & York on Wednesday proposed selling corporate aircraft, a parking garage, vacant land and other odds-and-ends in Canada to finance its expensive trip to bankruptcy court.

Banks and bondholders owed about $7 billion by Olympia & York Developments Ltd. objected strongly to the proposal, presented at a hearing in Ontario Superior Court.

O&Y;’s unsecured creditors argued that the plan unfairly burdens them with financing O&Y;’s overhaul. Secured creditors, or banks and bondholders with a claim on buildings for repayment, also objected.

An attorney for lenders to the Shell Centre office project in Calgary said the Reichmann family, O&Y;’s majority shareholders, has about $5 billion in equity in the company. The Reichmanns stand to benefit tremendously from the plan and should finance the restructuring, said the attorney, Len Sali.

“There’s no reason in the world why the shareholders shouldn’t fund” the restructuring costs, Sali said at a break in the hearing.

The cost of retooling the finances of O&Y; is enormously expensive--an estimated $40 million (Canadian) will be spent by October to overhaul the Canadian portion of the company, said Olympia & York attorney David Brown.

Most of that goes to lawyers, accountants and investment bankers advising O&Y; in its talks with lenders: J.P. Morgan, James Wolfensohn & Co., both of New York, and Burns Fry Ltd. of Toronto. That figure does not include costs for O&Y;’s creditor committees, Brown said.

The enormous restructuring expenses and how creditors will pay for them set off a wide-ranging dispute before Judge Robert Blair, who is overseeing O&Y;’s restructuring. O&Y; sought court protection from creditors last month after efforts to restructure its debts failed. The developer also filed for insolvency protection in England, but its U.S. properties have been spared so far.

Patricia Jackson, attorney for bondholders on the Scotia Tower office project in Toronto, said a significant portion of the restructuring costs do not pertain to the O&Y; companies covered by the bankruptcy order.

Jackson said interviews with corporate officials revealed there are 29 corporations within the Olympia & York group in Canada that are not covered by the bankruptcy filing.

Her statement raised questions whether O&Y; has been hiding significant assets from its creditors while at the same time asking creditors to pay operating costs.