published Wednesday, January 7th, 2009

Chattanooga: Millionaire McKenzie files for bankruptcy reorganization


by Monica Mercer

Cleveland, Tenn., businessman Steve “Toby” McKenzie, whose name is on UTC’s McKenzie Arena, has filed for Chapter 11 bankruptcy citing debts totaling more than $150 million.

Most of the money is owed to banks across the nation, including $200,000 to the Bank of Cleveland, records show. The largest debt listed among the bankruptcy documents totals $15 million and is owed to Green Bank in Knoxville.

Mr. McKenzie also owes $385,000 to Chattanooga law firm Grant, Konvalinka and Harrison, according to the documents filed Dec. 20 in U.S. District Bankruptcy Court in Chattanooga.

An involuntary bankruptcy proceeding against the millionaire businessman began a month earlier, documents show. In that filing, which is now a part of Mr. McKenzie’s Chapter 11 proceedings, three local banks claimed that the businessman owed them at least $40,425 more than the value of the liens on some of his property that the banks had used to secure their claims.

Mr. McKenzie’s lawyer, Kyle R. Weems, said Tuesday that his client’s decision to file Chapter 11 bankruptcy was prompted in part by a shaky real estate market.

“We fully expect to reorganize,” Mr. Weems said. The reorganization of Mr. McKenzie’s finances “will ultimately give him time” to regain ground, he added.

Mr. McKenzie made his initial fortune in the check cashing business. He now has ownership in 118 limited liability companies that deal in everything from construction to real estate, Mr. Weems said.

Mr. McKenzie also is known for donating money with his then-wife Brenda to help complete the construction of McKenzie Arena on the University of Tennessee at Chattanooga campus.

This latest bankruptcy filing represents a number of legal troubles for Mr. McKenzie involving his alleged failure to meet financial obligations.

In October, a Georgia federal court ordered that the businessman and some of his business partners, all named together in a lawsuit, immediately had to make good on about $11.5 million in lease payments on which they had defaulted almost a year earlier.

“Given the substantial sums owed under the contracts in this case and the defendants’ spotty payment history, (the creditor) certainly has reason to doubt the long-term solvency of the defendants,” stated the judge’s order, filed in U.S. District Court in Columbus, Ga.

Community Trust and Banking Co. of Ooltewah, which is one of the creditors in the bankruptcy proceeding, filed two lawsuits against Mr. McKenzie and other codefendants in 2008 for failure to pay off loans. In one of the cases, in which the bank claimed he owed $6.5 million, Mr. McKenzie did not deny he owed the money, but he disputed that he owed interest and late charges, documents state.

A Hamilton County judge, however, ordered that the loan, plus $408,000 in interest and other fees, be repaid immediately.

Another lawsuit filed last summer by Chattanooga’s Capital Mark Bank and Trust claimed Mr. McKenzie and another company owed the bank $575,000 plus interest for a 2006 loan that never was repaid.

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