McDonald v. Little Limestone, Inc. (In re
Powers Lake Construction Co.), 482 B.R. 803 (Bankr. E.D. Wis.
2012) –
A typical trust fund statute provides that payments to a
construction contractor are treated as funds held in trust until
its subcontractors and suppliers have been paid.In the case of a
contractor bankruptcy this can be a significant benefit, since the
subcontractors and suppliers can argue that the trust funds should
be turned over for payment since they are not even part of the
bankruptcy estate since.However, sometimes the value of this
protection can be illusory, as a material supplier discovered in
this casewhile trying to defend against a preference
claim.
In Powers Lake, the prime contractor (C.D. Smith
Construction, Inc.) hired the debtor (Powers Lake Construction
Company, Inc.), which in turn had a contract with material supplier
(Little Limestone, Inc.) to supply limestone, for a wastewater
treatment plant project.
