In the final part of this series, we look at how you can protect your position and be prepared in the event of an impending insolvency.

Thinking ahead

It is always prudent to assess insolvency risk before finalising a contract. The trading history and financial position of a company should be carefully reviewed and a financial risk assessment made at both the outset and during the lifetime of a project. Obtain an up to date set of accounts and a credit report before entering into your contract to enable you to assess the counterparty's financial viability.

In the second of our mini-series on insolvency in construction, we consider what you need to do when you find out that the party you are in contract with has become (or is about to become) insolvent.

Who are you in contract with? Which specific entity?

The first thing you should do in the event of a counterparty's alleged insolvency is check which legal entity you are in a contract with.

This is in order to prevent you from acting too early and committing a repudiatory breach yourself, if you take pre-emptive action against your counterparty.

Insolvency is high on the agenda in the construction industry.

In the first of this mini series, we take a look at the meaning of insolvency and summarise the main insolvency processes that can typically affect parties involved in construction projects. The series will also address contract issues and minimising risk, so keep an eye out for our future articles on this topic.

Short Summary

Traditional DIP Order Carve Outs Do Not Cap the Administrative Claims of Committee Professionals

On January 6, 2017, Judge Robert D. Drain of the Bankruptcy Court for the Southern District of New York orally approved a prepackaged plan of reorganization (a “Prepack”) in In re Roust Corporation, et al. (Case No. 16-23786), only seven days after Roust Corporation (“Roust Corp”) and two of its affiliates, CEDC Finance Corporation LLC (“CEDC Finco”) and CEDC Finance Corporation International, Inc. (together with Roust Corp, the “Debtors”), filed petitions for relief under Chapter 11.

The Barton doctrine, which has been imposed in “an unbroken line of cases … as a matter of federal common law,” In re Linton, 136 F.3d 544, 545 (7th Cir. 1998) (Posner, J.), requires that plaintiffs “obtain authorization from the bankruptcy court before initiating an action in another forum against certain officers appointed by the bankruptcy court for actions the officers have taken in their official capacities.” In re Yellowstone Mountain Club, LLC, No. 14-35363, ___ F.3d ___, 2016 WL 6936595, at *2 (9th Cir. Nov.