Friends, underwriters, bond claim managers: lend me your eyes, and behold the saga of a surety that accepted collateral security from a financially unstable principal as an inducement for the issuance of new Miller Act performance & payment bonds. The drama unfolds when the principal files for bankruptcy protection within 90 days of the collateral transfer and the bankruptcy trustee — that most formidable of foes! — seeks to avoid the transfer as preferential. Fear not, dear readers! Our hero fights gallantly in In re ESA Environmental Specialists, Inc., and is richly rewarded in this Fourth Circuit Court of Appeals production.
Tag Archives: irrevocable letter of credit
4th Circuit Stages “The Collateral Battle” Between A Contract Surety & Its Principal’s Trustee in Bankruptcy
A Grim Tale
Once upon a time, Best General Contracting, Inc. hired Able Electric Services Co. to perform the $900,000 electrical scope of work on a library project for a local college. Having not worked with Able before, and in light of the value of the electrical scope, Best required Able to obtain subcontractor performance & payment bonds for Best’s benefit, agreeing, of course, to reimburse Able for the $13,500 bond premium. As fate would have it, the library project proved one too many for the not-so-able Able, who ran into cash flow problems, sought bankruptcy protection and abandoned the project. Best immediately fired off a notice of default letter to Superior Surety and hoped that the claims handling process would match previous, positive experiences with subcontractor sureties and culminate in a quick, fairy-tale resolution to this project setback.
To Best’s surprise, it would not. Continue reading