Experienced Kansas City Construction Law Firm

Can a client sue a bankrupt commercial construction firm?

On Behalf of | Nov 16, 2023 | Construction Litigation

Selecting a construction firm for a commercial project is a major endeavor. Business and property owners often look at multiple bids. They may visit completed structures built by the companies bidding on the project and consider everything from the projected timeline to the estimated total construction costs when determining which company to hire.

Those paying for a commercial construction project expect that a construction firm will abide by its contract and complete the project in accordance with their instructions. Unfortunately, sometimes construction firms stop working on a project when it is still only partially complete. They may also do unprofessional work or use cut-rate materials. The client may only realize that there are issues with the property after beginning to use it for business purposes or seeking to rent it out to commercial tenants. A construction defect lawsuit may follow the discovery of major issues with a project.

There are special lawsuits possible during bankruptcy

The best-case scenario for a dissatisfied client upset with the outcome of the commercial project would be to learn about the commercial bankruptcy early in the process. They can then potentially request adversary proceedings in court. Adversary proceedings are special lawsuits related to bankruptcy filings.

In some cases, individual creditors can ask to exempt a debt from the bankruptcy proceedings to continue attempting to collect on it. Other times, they could raise allegations that the construction firm engaged in some sort of fraud. Knowingly taking on debt, including projects that they accept payment for without completing, could be an example of actionable fraud.

The type of bankruptcy may also influence the client’s options. If the business files a Chapter 7 bankruptcy with the intent of closing, then taking action during the bankruptcy proceedings might be necessary. Clients left with unfinished work or an inadequate facility could receive some of the proceeds from the liquidation of the construction firm’s assets. If the business intends to restructure, the client may be able to have their obligations included in a court-approved plan for the company.

Bankruptcy can complicate the process of holding a construction firm accountable for poor workmanship or contract violations. But, reviewing the nature of the construction defect claim and the circumstances of the potentially bankrupt firm involved with the assistance of a knowledgeable attorney can help frustrated clients plan the best response possible given the situation.