Preference Claims, Clawbacks In Bankruptcy Can Disrupt A Construction Project

Highlights

• A bankruptcy filing by a single construction project participant can cause a chain reaction in which payments aren't met, leading to financial distress, impacts to project payment systems and completion schedules, and/or bankruptcy for other participants.
• In addition, the bankruptcy trustee administering the case has the ability to claw back or demand the return of all payments made by the debtor to third parties in a 90-day period prior to the date the debtor's bankruptcy case began. These are often referred to as "preference demands."
• The good news is that there are several defenses that may reduce or completely eliminate liability in connection with preference demands.