NLB works even if your customer declares bankruptcy.

Sometimes, one of the parties in the equation of your project will file for bankruptcy, which complicates the process.  Because a bankruptcy can interfere with the normal payment process, the additional security provided by lien and bond claims becomes especially important.

Bankruptcy – Lienholder files for protection.
In this case, the client was a bank that had a security interest in receivables.  The bank’s customer filed for bankruptcy.  Because of the security interest in the receivables, the bank wanted to collect on its debtor’s valid lien and bond claims.  The bank first presented a motion in the bankruptcy court to lift the automatic stay to permit the bank to enforce the lien and bond claims.  The bank then enforced the claims on the same footing as though it were the subcontractor itself.

Bankruptcy – Client’s customer files bankruptcy.
In this case, the client was a subcontractor.  The general contractor filed for bankruptcy protection.  The client had a valid lien, properly perfected.  Because the general contractor was a necessary party to the suit to enforce the lien, the client first had to present a motion in the bankruptcy court to lift the automatic stay as to the general contractor, to include the general contractor as a necessary party only.  Suit was then filed to enforce the mechanic’s lien.  The matter was ultimately settled with the owner.  The process would be similar for any situation where a party in the contract chain between the customer and the owner filed for bankruptcy protection.

Bankruptcy – Owner files for protection.
In this case, the client was a general contractor, and the owner filed for bankruptcy protection.  A lien was properly perfected, and a proof of claim as a secured party was filed.  The situation was more complicated than usual, because the owner had only a leasehold interest, and the landlord was a public body.  A lien on a leasehold is less valuable than a lien on the underlying property, which was not available because one cannot place a lien against public property.  In this instance, the bankruptcy trustee wanted to clear the secured claim against the lease.  To do so, the matter was settled by having half the value of the claim paid as an administrative expense, providing an immediate payment.  The full value of the claim was still allowed, but converted to an unsecured, rather than a secured claim. 

Ask us as to how we can protect your business. Call NLB today… 1-800-432-7799


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