Imagine this scenario: your client is a contractor, subcontractor or materialman on a construction project. Having completed the work, your client is promptly paid in full. Because of this, your client doesn’t bother to file a mechanic’s lien on the project. However, within 90 days after the payment, the payor, usually the contractor or general contractor (or the owner), files for bankruptcy.
The U.S. Court of Appeals for the Eleventh Circuit has held that the bankruptcy court’s exclusive jurisdiction to dispose of estate property did not preclude the enforcement of an arbitration provision.
With the recent decline in housing and real estate generally, companies in the homebuilding and construction markets face serious challenges. Some projects have already been forced into Chapter 11 and others will almost certainly require either a bankruptcy filing or out-of-court restructure. In the event a bankruptcy is filed, vendors, contractors, subcontractors and other interested parties should be aware of the impact of important bankruptcy code provisions on their relationship with troubled companies.
Automatic Stay
Effective March 31, 2009 (not April 1), Georgia lien law is officially set to undergo a series of substantial changes, as a result of Governor Sonny Purdue signing Senate Bill 374 into law. These changes are significant and exist throughout the lien statutes. Many of the revisions require new, very specific procedures and forms that must be precisely followed in order to prevent waiving lien rights. Although the new lien law is not technically retroactive, it appears that several of the requirements could pertain to liens filed prior to March 31.
In an opinion issued May 12, 2009, the Sixth Circuit Court of Appeals determined that a Michigan contractor’s obligations to a subcontractor would not be discharged. Sameer Patel v. Shamrock Floorcovering Services, Inc. No. 08-1265.
In a decision entered July 30, 2009, the Bankruptcy Court for the Eastern District of North Carolina held that a bankruptcy trustee can avoid the lien claim of a subcontractor whose claim derives from a claim of lien on funds asserted under North Carolina state law. The case is In re: Harrelson Utilities, Inc.
Legal Background
Insurers and insureds do not bear the risk of a contractor becoming insolvent when undertaking insured repair work. The insurer’s only obligation is to pay its appointed contractor and not any subcontractors engaged by that party.
Background
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
With the recent decline in housing and real estate generally, companies in the homebuilding and construction markets face serious challenges. Some projects have already been forced into Chapter 11 and others will almost certainly require either a bankruptcy filing or out-of-court restructure. In the event a bankruptcy is filed, vendors, contractors, subcontractors and other interested parties should be aware of the impact of important bankruptcy code provisions on their relationship with troubled companies.
Automatic Stay
Key Points:
Principals or contractors dealing with insolvent downstream companies should ensure they can properly substantiate any counterclaims.
Usually a principal is not entitled to rely on a set-off or counterclaim to resist court proceedings to recover a debt under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act). However because of the operation of section 553C of the Corporations Act, the situation is different if the claimant is in liquidation.
Insolvent subcontractor’s claim