Citing concerns over poor health and the failure to file financial information with the court, a U.S. Bankruptcy Court judge on Thursday appointed a trustee to oversee all of Cleveland, Tenn., businessman Steve A. "Toby" McKenzie's companies.
The businessman who made his fortune in the payday loan business now is in Chapter 11 bankruptcy and owes approximately $200 million to about 40 creditors nationwide, records show.
Mr. McKenzie has been in the hospital since Feb. 9, and U.S. Bankruptcy Judge R. Thomas Stinnett said Thursday it's "understandable" how the stress of the bankruptcy proceedings could have contributed to Mr. McKenzie's drastic decline in health and a failure to file financial documents.
Judge Stinnett also said that Mr. McKenzie's creditors, who are under stress from a poor national economy, must be protected.
"With all due respect," Judge Stinnett ruled, "the debtor simply cannot operate (his business) from the confines of a hospital room."
Trustee C. Kenneth Still was appointed to handle Mr. McKenzie's assets.
Kyle Weems, Mr. McKenzie's bankruptcy attorney, said that while he had hoped the judge would give them more time for Mr. McKenzie to regain his health, the appointment of the trustee probably was in the best interests of everybody.
"This allows us to survive Chapter 11," Mr. Weems said after Thursday's hearing.
A Chapter 11 bankruptcy is a mechanism in which a person in financial trouble such as Mr. McKenzie is allowed to try to salvage any business dealings and regain financial footing. Mr. Weems said he is confident Mr. McKenzie could get on his feet again when and if the economy turns around. Mr. McKenzie has admitted that the downturn in the real estate market contributed to much of his debt.
Without a trustee to take over the reins, Mr. McKenzie's Chapter 11 proceeding could have been dismissed, which might have allowed creditors to start foreclosure proceedings on all his assets and his numerous limited liability corporations, an attorney with the office of the U.S. trustee said.
The case also could have been converted to a Chapter 7 proceeding, which automatically would have liquidated Mr. McKenzie's assets so creditors could be paid.
Mr. McKenzie has 100 percent ownership in 16 separate companies and at least 20 percent ownership in 48 companies, according to court documents.