Three prominent national contractors—Lakeshore TolTest Corp., Truland Group and Lamar Construction Co.—each has left a tangled mess for creditors, employees and clients in recent bankruptcy liquidation filings.
Unlike a Chapter 11 filing under the federal bankruptcy code, where a company seeks to discharge debts but continue operations, Chapter 7 involves a sudden shutdown and sell-off of company assets. The collateral damage can be considerable.
"Non-dischargeable debts under Chapter 7 include sales taxes, employee withholdings and fraud," says bankruptcy legal expert David S. Waltzer of Waltzer Law Group, New York City. "Chapter 7 bankruptcy stops everyone in their tracks. If you don't stop the litigation, it becomes completely unmanageable."
Lakeshore Toltest, which had grown through acquisition into a $500-million global contractor, left behind $50 million to $100 million in liabilities with nearly 10,000 creditors—including subcontractors, lenders, suppliers trade groups, engineers and union pension funds. The firm filed for bankruptcy on May 2 in Delaware, where Lakeshore Toltest's parent is based.
Just days before, the firm had fired 79 overseas employees and 135 subcontractors by email. Workers were left to find their own transportation home, say former consultants. The contracts it won—just days before the filing—for a sewer project for the city of Detroit now are having to be rebid. The U.S. Justice Dept. also is "exploring various wrongdoings" by the company, according to legal papers.
The company's founder and 27% owner, Avinash Rachmale, had been a director until resigning on April 2. He sued the company's current management and new investors in state court in Michigan on April 25, accusing them of "wrongful actions and illegality" as well as "financial frauds and mismanagement." Rachmale says he has not had day-to-day control of the company since 2012.
Lamar, another company that owes money to its employees, also closed operations suddenly. The Hudsonville, Mich., contractor on July 9 shut down all work on projects in Michigan, Colorado and Kentucky due to "current economic conditions." It filed for bankruptcy protection two days later. One ex-employee has filed a federal class action suit in Grand Rapids, Mich., that seeks up to $12,000 for each worker who lost a job. The suit claims the firm violated federal law by terminating 280 employees without 60 days' written notice.
Reston, Va., electrical contractor Truland Group ceased operations on July 21 and filed for bankruptcy protection in federal court in Virginia. Electrical workers' union Local 26 in Washington, D.C., claims it is owed about $232,000, and National Electrical Contractors Association trust funds are owed another $305,000.
One industry leader tied the sudden failures to possible poor allocation of risk.
"Recent bankruptcies and liquidations reflect a serious challenge," says Bruce D'Agostino, president of the Construction Management Association of America. "We have a shortage of qualified subcontractors … [that] will worsen if firms are driven out of business by exposure to large risks outside of their control."