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
A recent TCC decision has concluded that the contractor insolvency provisions of the JCT form continue to apply after a termination by the contractor for repudiation. This conclusion may give rise to surprising results and potentially allow an employer to claim from the contractor additional amounts incurred in completing the works with a third party even after termination for the employer’s own default and/or repudiation.
In accordance with the resolution adopted by the seven-judge panel of the Supreme Court dated 20 November 2019, case file no. III CZP 3/19, it is not admissible to stipulate liquidated damages in the case of rescinding an agreement due to the failure to perform an obligation of a pecuniary nature.
A Singaporean construction company in liquidation has successfully sued one of its former directors for failing to act in the best interests of the company, highlighting the importance of directors being aware of, and protecting against, potential personal liability for breach of duty.
Directors’ liability – the risk
On March 27, the president signed into law Phase 3 of the federal stimulus program, called the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. Title I of the act, titled the Keeping American Workers Paid and Employed Act (KAWPEA), directs, among other amounts, $349 billion to small businesses as part of an expansion of the U.S. Small Business Administration’s (SBA) Section 7(a) loan program under a new paycheck protection loan program (PPP) as well as $10 billion through an expansion to the SBA’s Section 7(b) economic injury disaster loan (EIDL) program.
In the construction industry, contractor insolvency delays projects, increases costs and may deprive the employer of remedies and third parties of meaningful warranty protection. In 2008, it was reported that the number of construction firms facing grave financial concerns was 547 per cent higher than in 2007 (Building, 14 November 2008). As contractor insolvencies are likely to increase in 2009, how can an employer protect its position at the start of a project and when contractor insolvency occurs?
Contractual safeguards
In re: Linear Electric Co., Inc., No. 16-1477, 2017 U.S. App. Lexis 5527 (3d Cir., March 30, 2017)
The trustee of a liquidating trust under a general contractor’s confirmed chapter 11 plan tried to recover pre-petition payments made to a subcontractor as either a preference or a fraudulent conveyance. The court’s decision turned on whether the payments were trust funds under the Illinois Mechanics Lien Act.
The New Jersey Appellate Division recently ruled in Vollers Excavating and Construction, Inc. v. Citizens Bank of Pennsylvania, Docket No.