Bankruptcy Construction Seminar, Stites & Harbison, PLLC
-
Upload
stites-harbison -
Category
Education
-
view
551 -
download
0
description
Transcript of Bankruptcy Construction Seminar, Stites & Harbison, PLLC
![Page 1: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/1.jpg)
1
Construction
CONNECTIONSPeople | Ideas | Trends
![Page 2: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/2.jpg)
2
Goal
Mitigate risk before a bankruptcy …
![Page 3: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/3.jpg)
“Where are we going?”
• Automatic Stay and Executory Contracts
• Mechanic’s liens and “Relation Back”
• Avoidable Preference Actions
![Page 4: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/4.jpg)
It all depends on your …
![Page 5: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/5.jpg)
Players
![Page 6: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/6.jpg)
Liquidated damages of $1,000 per day if project is not substantially complete by August 25, 2012.
![Page 7: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/7.jpg)
On Time … On Budget
On August 10, 2012, project is 95% complete. And this is where our story begins…
![Page 8: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/8.jpg)
What should contractor do?
![Page 9: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/9.jpg)
9
The Automatic Stay in Bankruptcy
• Debtor’s Estate = all legal and equitable property of the debtor at the time of filing.
• § 362 Automatic Stay prevents a creditor from doing certain things to or with property of the Estate.
![Page 10: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/10.jpg)
10
Executory Contracts and the Stay
• What is an executory contract?
– A contract that is so far “unperformed” that if either party failed to act on its promise it would constitute a material breach excusing the performance of the other.
![Page 11: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/11.jpg)
11
• Executory contracts are property of the bankruptcy estate.
• They can be rejected, assumed, or assigned to another party.
• Therefore, they have value ($$) to debtor and add ($$) to the bankruptcy estate.
![Page 12: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/12.jpg)
The Bottom Line• When party files
bankruptcy, be aware of the automatic stay…
….SEEK RELIEF!
• Penalties include:– Voiding action– Paying damages– Contempt
![Page 13: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/13.jpg)
Besides the “stay”… what else?
Continue to protect your claims through lien rights.
Compare:File lien … Perfect lien…
Enforce lien…
![Page 14: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/14.jpg)
Post-Petition Mechanic’s Lien
Is the construction project in a “relation back” jurisdiction?
All liens “relate back” to the visible commencement of the job.Tenn. Code 66-11-1-4(a)
![Page 15: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/15.jpg)
15
Why Does Relation Back Matter?
• § 362(b)(3) and 546(b) of the Bankruptcy Code provide “exception” to the automatic stay.
• Permits perfecting a mechanic’s lien because the GC/SC’s right to be paid relates back prior to the date of actual perfection.
• Thus, filing a mechanic’s lien would not violate the stay.
![Page 16: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/16.jpg)
What if owner files bankruptcy?
![Page 17: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/17.jpg)
CAN THEY DO THIS?
![Page 18: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/18.jpg)
What is Avoidable Preferences?
• Payment of debt to creditor within 90 days of filing
• Creditor received more than it would in hypothetical Chapter 7 liquidation
![Page 19: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/19.jpg)
Earmarking and the Debtor’s “Interest”
• Require Owner to put construction funds in “escrow.”
• If debtor does not have an interest in the property, it is not property of the Estate.
• Thus, not a “Preference.”
![Page 20: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/20.jpg)
1. Perfected lien rights
(Lien waiver strategy)
How to Mitigate Preference Liability
2. Construction Trust Fund
3. Ordinary course of business
4. New value
![Page 21: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/21.jpg)
Other Pieces
Reclamation
Trust Fund
Performance Bond
Payment
Bonds
![Page 22: Bankruptcy Construction Seminar, Stites & Harbison, PLLC](https://reader034.fdocument.pub/reader034/viewer/2022052411/55644d22d8b42ad6268b4e31/html5/thumbnails/22.jpg)
Questions?
AlexandriaAtlanta
FrankfortJeffersonville
LexingtonLouisvilleNashville
www.stites.com