Over the past year, the Covid-19 pandemic upended many industries. While the construction industry has largely been able to operate throughout the pandemic, albeit with increased and ever-changing restrictions on jobsites, one consequence of these disruptions may be an increase in construction-related bankruptcy filings. Already in 2021, there have been over 70 construction-related bankruptcy filings across the country. For many property owners and real estate developers, these filings create a nightmare scenario where work may slow or even stop entirely.
Analysts expect that GDP will plummet as a consequence of the restrictions on economic activities imposed as a consequence of the COVID-19 pandemic, and that the global economy, and with it the Czech economy, will slow down considerably. Various entities from across numerous industries are facing, or may soon face, an immediate liquidity shortfall.
One of the recent hot topics in the European restructuring market has been whether the UK Courts would sanction a scheme of arrangement in relation to a foreign company, with no previous connection to the UK whatsoever, where the sole basis for establishing jurisdiction to undertake the scheme would be amending the governing law and jurisdiction clauses of the company’s principal finance documents to English law.
In general, a company has two bankruptcy alternatives: liquidation under Chapter 7 and reorganization under Chapter 11.
Under Chapter 7, upon the filing of a bankruptcy petition, a trustee is appointed to gather and sell all of the debtor’s assets as quickly as possible. Once the trustee liquidates all of the assets, it must pay creditors in accordance with the priority scheme mandated by the Bankruptcy Code:
In today’s economy, we continue to see bankruptcies occurring in the construction sector. An owner, contractor, or subcontractor in financial distress can easily delay a project — or worse, jeopardize the project in its entirety. Contractors need to understand their rights in order to minimize their exposure in bankruptcy-related situations.
Protecting Contractors — Frequently Asked Questions