After over 100 years in business, the Hertz Rental Car company filed for bankruptcy on May 22, 2020. While the company has reported net losses for the last few years, the COVID-19 pandemic drove the final nail in the coffin. The construction companies who have contracted with Hertz on property developments, repairs, or improvements are now on high alert for payment disputes.
The bankruptcy comes almost a month after the rental car company missed a payment to its vehicles lessors. The company’s loss of potential customers, made up mostly of business and pleasure travelers, crippled cashflow. Also devastating was a loss of rentals from vehicle owners sending their cars in for repair.
Hertz Corporation, which owns Dollar Rent a Car and Thrifty Car Rental, has an expansive network of physical storefronts and offices. In addition to Hertz has had close ties to the construction industry for decades, even launching a heavy equipment rental company in 1965. Now called Herc Rentals, they became an independent public company and were unaffected by the bankruptcy.
Amidst bankruptcy, Hertz faces barrage of mechanics lien claims
Now that Hertz is protected under the law, what does the bankruptcy mean for contractors and other creditors?
Contractors on Hertz-owned projects aren’t likely to see progress payments and checks being cut with their names on it. Instead, property owned by the Hertz Corporation is likely to be protected by the automatic stay applied during the bankruptcy process. The bankruptcy puts construction companies on Hertz-owned projects in a vulnerable position.
Shortly before the bankruptcy filing, Coastal General Contracting filed at least 10 mechanics lien claims for against The Hertz Corporation for money owed to them on multiple New Jersey projects. The lien claims range in size from $746 to $5,043, totaling nearly $25,000. While the sum doesn’t come close to approaching the multi-million dollar claims filed against 24 Hour Fitness, contractors and creditors on Hertz projects are likely to face payment problems in the near future.
Even though Coastal filed their mechanics liens ahead of Hertz’s petition for bankruptcy, they’ll have to wait until the bankruptcy court lifts the automatic stay or grants relief to perfect the lien.
Mechanics lien claims during bankruptcy
While a contractor can file a mechanics lien after a company petitions for bankruptcy, they can have trouble enforcing the lien. Attempting to enforce the lien may put them in violation of the automatic stay.
Bankruptcy proceedings are typically friendly towards mechanics lien claims. However, when the site owner is the bankrupt party, the story changes. Contractors will have to appeal to the bankruptcy court for relief from the automatic stay. Only then can their mechanics liens be perfected before the resolution of the bankruptcy.