AWI e-briefs - 05/07/2009 (Plain Text Version)

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Learning Forum

Free ASA/FASA Podcast Helps Subcontractors Survive a Prime Contractor’s Bankruptcy Filing

The number of businesses that filed for bankruptcy increased by more than 50% in 2008, and now construction subcontractors have a new resource to help them in case a key client files for bankruptcy.

Visitors to the American Subcontractors Association’s (ASA) Web site, www.asaonline.com, can download and listen to a new podcast from ASA and the Foundation of ASA, “Traps to Avoid When a Customer Files Bankruptcy,” to learn how to reduce and avoid the common risks and costs of a prime contractor’s bankruptcy filing.

In this 20-minute audio program, William Norton, Esq., a partner in the Nashville, TN, office of Bradley Arant Boult Cummings LLP, discusses: steps to take early on in a project that could help if the prime later files for bankruptcy; some of the typical events that follow a bankruptcy filing; ways that a bankruptcy affects contract-related payments and claims; and tips for preserving claims and getting a maximum financial recovery.

Norton cautions subcontractors that a prime contractor’s bankruptcy filing can threaten not only payments owed to them at the time of the filing, but also payments that they received before the filing date. “There’s a concept in bankruptcy of ‘preferences,’ where you may … have to turn around and give payment back that you received within 90 days of the bankruptcy,” Norton explains. He outlines several legal strategies to help subcontractors keep payments they have received from becoming “preferences” that could be taken away. Norton also describes:

* The difference between a Chapter 7 (liquidation) and a Chapter 11 (re-organization) bankruptcy and how each typically impacts the course of a project and the continuation of the contract.
* How bankruptcy will affect a subcontractor’s collection efforts.
* The legal filings that a subcontractor needs to file to effectively recover funds embroiled in the bankruptcy.
* The benefits of joint-payee checks to ensure that subcontractors are paid.

Listening to the program does not require an iPod®. Visitors can download the podcast and listen to it on a computer with a headset or speakers, or on any MP3 player. The podcast is similar in format to the podcasts ASA and FASA offer in their “Essentials of Contract Evaluation” podcast series.  [Return to top]