Construction businesses are still struggling around California, with a few contractors reporting revenues of less than $500,000 in the last year — and eight contractors filing for bankruptcy in April 2022 alone.
The California construction businesses that filed for bankruptcy in April include:
- June A. Grothe Construction Inc. (April 30)
- GJ Engineering Construction Inc. (April 27)
- Urban Builders Specialist Inc (April 21)
- Kaat Construction Inc (April 15)
- CJW Enterprises Inc (April 4)
- WF Builders Inc (April 11)
- General Builders Group (April 26)
- TKM Plumbing Inc (April 22)
All of the above filed for Chapter 7 bankruptcy, which means that these contractors are hoping that liquidating their assets will help pay off their liabilities and satisfy their creditors — with half of these businesses owing liabilities over a million dollars.
One notable case is TKM Plumbing, which has over 50 creditors listed in their bankruptcy filing. Nearly $1.4 million dollars in secured and unsecured claims are in dispute right now.
In what may be a familiar pattern for contractors, TKM Plumbing also listed two lawsuits their bankruptcy filing, with claims of up to $318,000 that they’re still due to receive. Many contractors have faced difficulties continuing their work while waiting for such payments.
Their filing also showed that half of TKM’s credit accounts came from obtaining building supplies. These amounts ranged from a few hundred dollars apiece to as much as $10,000.
June A. Grothe Construction is another notable filing: This contractor reported revenues between $20–50 million, yet they are facing liquidation bankruptcy.
According to Grothe’s bankruptcy filing, there are currently almost $4 million in claims against their business. Like TKM Plumbing, they are also waiting for payment on various claims. One is an employee retention credit of more than $60,000, as provided by the Cares Act, that they say they never received from the IRS.
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Additionally, June A Grothe’s 33 creditors are nearly all subcontractors who have filed liens against their work on various projects. Some claims fall below $1,000, while single liens are valued at over $100,000, but there’s no indication of the liens being active at this current moment.
Unlike Chapter 11 bankruptcy, Chapter 7 is a sign to a business’ creditors that the business most likely does not have the ability to restructure.
“When a contractor on a project goes bankrupt, securing lien rights (or bond claim rights were applicable) is typically the strongest protection lower-tiered subs and suppliers have on the project,” says construction attorney Alex Benarroche.
Like Benarroche explains, these bankruptcy filings show just how important it is to secure a right to payment, and to secure a copy of the bond claim for an applicable project, if possible. The inability of these two contractors to pay their debts can easily trickle down to subcontractors.
“Assuming that a timely preliminary notice was sent at the outset of the project. Once a contractor gets wind that their client or another higher-tiered contractor goes bankrupt on the project, they should begin to gather any supporting documentation and invoices to prepare to file a claim if a payment problem ultimately arises,” Benarroche says.
Despite construction demand going up and providing much-needed financial relief the risks of the construction business are still very real. Supply chain issues, labor shortages, and lack of building supplies will complicate the economic recovery still ahead.