Even though business bankruptcy filings fell as much as 33 percent between 2020 and 2021, many construction businesses in California are still struggling to recover from the effects of the COVID-19 pandemic, among other challenges with costs and labor — and 10 filed for bankruptcy in March 2022.
These businesses include:
- Angle Ironworks, Inc. (March 28)
- Litch Construction Company, Inc. (March 15)
- RSL Construction (March 15)
- RVR General Construction, Inc. (March 12)
- R&R Construction, Inc. (March 10)
- Savvy Window Decor, INC (March 2)
- Kor Construction Inc. (March 1)
- DesignPlanBuild Inc. (March 24)
- Guild LLC (March 23)
- Skylights, Inc. (March 15)
Bankruptcies are categorized into three different chapters: 7, 11, and 13. California construction businesses saw both Chapter 7 and Chapter 11 filings in March.
Chapter 7 bankruptcies are used to tell a company’s creditors that there are no assets left and nothing to collect. This can be a sign that the contractor is going out of business and has no means to settle its debts.
When filing for Chapter 11 bankruptcy, a business usually still has assets and revenue coming in and is attempting to stay in business. This is called a “reorganization bankruptcy,” as it involves trustees who help with the restructuring — and could still end in liquidation in the future.
7 of the 10 March 2022 bankruptcy filings were Chapter 7, including R&R Construction. R&R Construction’s income was cut in half between 2020 to 2021, and their bankruptcy filing reported no income at all so far for 2022.
Bankruptcy documents reveal that the contractor has one pending lawsuit filed against them for $1.1 million dollars, as well as a claim from an insurance company for an unknown amount. The lawsuits are against Reon Roski of Majestic Realty and Preferred Contractors Insurance. R&R’s filing also showed legal fees and a loan as its other debts.
RVR Construction is a contractor facing Chapter 11 bankruptcy — and is attempting to create a new financing structure to stay in business. Their bankruptcy documents show that they have ample assets, but their liabilities far surpass what they have in the bank. The California Department of Industrial Relations currently has a claim of $4.3 million against the contractor.
RVR is facing these difficulties despite having cash on hand, various assets, as well as accounts receivable. Guild LLC (also filing for Chapter 11 bankruptcy) is the only other contractor of the 10 who had the assets on hand to continue their business.
Despite the many supply chain issues facing many contractors, the economy is showing signs of a quick comeback. Demands for building supplies and labor are still a struggle, but construction demand is providing much relief for contractors seeking a revenue boost (and have the workers to take advantage of it).
Securing the right to payment is an important step when entering into an agreement with a contractor. If subcontractors are unable to seek payment once a contractor has entered bankruptcy, it could complicate any economic recovery that may be forthcoming.
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