BANKRUPTCY IN CONSTRUCTION:
WHAT YOUR CLIENT CAN DO,
CAN'T DO, AND SHOULD DO

1. Introduction
2. Containment: Limitations of this Article
3. Seizing the Enigma: The Background of Bankruptcy
1. History of Bankruptcy
2. Laws Governing Bankruptcy
3. Getting into Bankruptcy Court
4. The Gathering Storm: Pre-Bankruptcy Considerations
1. Bankrupt, Broke, or Both?
2. You Cannot Get Away
5. Keeping Watch: Request for Notice and Meeting of Creditors
6. Bankruptcy's "Big Three": Most Frequent Issues
1. The Automatic Stay
2. Rejection/Assumption Contracts
3. Voidable Preferences
7. Triumph and Tragedy: Applying Bankruptcy Law
1. Owner Bankruptcy
2. General Contractor Bankruptcy
3. Subcontractor Bankruptcy
8. Closing the Ring: Other Bankruptcy Issues
1. Involuntary Proceedings
2. Proofs of Claim
3. Bankruptcy and Sureties
4. Plan Confirmation
9. Strategic Withdrawal: When to Call an Expert

Abstract

Like their clients, construction lawyers often "subcontract out" legal work in certain specialized areas. It is uncommon (and often inadvisable) for a lawyer concentrating on construction issues to handle the complexities of antitrust, banking, or tax law. However, clients sometimes need quick advice on non-construction legal problems involving criminal, family, or immigration law and cannot wait for you to refer them to a specialist. In today's business climate, bankruptcy is another one of the areas that every construction lawyer should know something about in order to answer those "emergency" calls. Additionally, construction law interplays with bankruptcy on many issues, and lawyers representing owners, general contractors, or subcontractors must know at least enough to recognize if not necessarily resolve these issues.

The purpose of this article is to help construction lawyers in identifying, anticipating, and solving some of the most common bankruptcy problems that confront construction progress. Experience shows that when a player on a construction project - owner, G/C, or sub - files bankruptcy, some non-debtor will have to deal with: (a) the automatic stay; (b) the assumption or rejection of executory contracts; and/or (c) preferential transfers. Given the prominence of these three issues in construction, the focus of this article will be upon the challenges they create and suggested ways to react to them. Other issues, such as proofs of claim and the effect of reorganization plans in Chapter 11, are discussed briefly near the end of the article.

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