General Inquiries

Sub contractor receivable sold to financial services

  • 1.  Sub contractor receivable sold to financial services

    Posted 5 days ago
    ​We are general contractor and one of our sub-contractors sold their receivables to a financial services and will probably file for bankruptcy. The financial services just recently filed their UCC Financing Statement to the state.  We received this notification today and we have been requested by the financial services to provide them a copy of our AP Aging Report and remit all payments to them.  In the past few weeks, we have been issuing joint checks to our sub-contractor (Joint between sub and supplier) because I believe that's the right thing to do.  Any thoughts?

    Thanks,


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    Elizabeth Ramos-Craig MST
    Controller
    Johnstone Moyer, Inc.
    San Carlos CA
    (650) 570-6161
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  • 2.  RE: Sub contractor receivable sold to financial services

    Posted 5 days ago
    We had this situation recently. We simply consulted our attorney and follow directions. The subcontractor did file bankruptcy and our attorney protected our interest in ability to continue with our work, which was in jeopardy because of the bankruptcy filing.
    We found it while The companies who claimed they had purchased the receiver (there were multiple) didn't really have a claim or didn't actually file it with the bankruptcy court. We would not have provided them a list of our AP aging.


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    Timothy Mickunas CPA, CCIFP
    Chief Financial Officer
    D. Wilson Construction Company
    McAllen TX
    (956) 686-9573
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  • 3.  RE: Sub contractor receivable sold to financial services

    Posted 4 days ago
    ​You need to consult an attorney who understands your states laws immediately.  In Colorado we have a law called the "Trust fund statute" that provides direction on situations like this and often trumps UCC laws and procedures, but it gets really complicated in situations like this, particularly for the GC and even more so if any banks or bonding companies are involved with that project or client.  Acting without counsel would be ill advised, particularly since you mentioned a potential BK.

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    Marc Hendrikson CPA, CCIFP, CGMA
    Senior Vice President, Contractor & Commercial Banking
    Sunflower Bank
    Broomfield CO
    (303) 831-6735
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  • 4.  RE: Sub contractor receivable sold to financial services

    Posted 4 days ago

    You should continue to protect your interests by making sure your sub's suppliers get paid.  Either by joint check or an agreement with the financial service that they will pay the suppliers. 

     

    Dianne Jackson
    Chief Financial Officer

    dianne.jackson@cmswillowbrook.com



    CMSWillowbrook
    3108 S. 9th St.
    Chickasha, OK  73018
    405.224.1554 tel
    405.590.2641mobile

    www.cmswillowbrook.com

    TWP_Oklahoma_2019_AW



     






  • 5.  RE: Sub contractor receivable sold to financial services

    Posted 21 hours ago

    There are a lot of issues that come into play when receivables are sold --- including lien rights, which may have been assigned (or could be) to the factoring company.  We have a submitted question like this on our expert center, which has an answer that may be helpful here:


    Subcontractor sold their receivables to a financial services company who is trying to collect from us
    Here's a clip from some of the answer:

    There are a few questions here so I will try and address them all but in order of fact first.

    1.  Are you sure the subcontractor SOLD their receivables or did they just default on a loan?  this is important to know because if they really sold their receivables to a Factoring company than you would have been provided a Notice of Assignment (NOA) signed by the subcontractor and delivered to you directly.  If the subcontractor defaulted on a loan or other type loan, like a Merchant Cash Advance (MCA), then the MCA (financial services company) is trying to collect on the receivable due to the default.  If you are not familiar with what an MCA is and how it can impact a subcontractor in construction there is a good article you can read via this link, https://mobilizationfunding.com/2019/08/15/the-guide-to-merchant-cash-advance-loans-mcas/. 
    2. The UCC financing statement is used to let the world know that there has been a lien filed against the company for some purpose.  This is NOT necessarily a bad thing as it could simply be for a bank loan, piece of equipment, or the receivables of the business and the lien is typically filed at the time the loan or agreement is signed.  It is important to know that the financial services company must have a Security Agreement that details the specifics of what they have been given the right to lien. You can ask for the Security Agreement and the financial services company should provide it to you if they have noticed you of their lien.
    3. Regarding your question of who do you pay? – This completely depends on whether or not you have been provided with a Notice Of Assignment and the subcontractor has sold their Invoice (otherwise known as factoring) AND if you executed some type of verification document directly to the factoring company – this could be by email or written.  If you have not done either of those things then your contract language with the subcontractor is what you would be governed by in our experience.  Best to consult your attorney here as I don't have all of the facts and are just making assumptions based on what you state in your question. Either way, the ONLY thing that would likely remove your ability to pay what is needed per your subcontract agreement would be if you signed something with the factoring company.
    4. Financing companies typically do not have lien rights on a construction project
    5.  Next Steps if I was in your shoes:
      1. Find out exactly what the financial services company has a lien for and get a copy of the security agreement to accompany their UCC
      2. Determine if someone in your company agreed to anything from the financial services company directly
      3. Determine if the subcontractor actually is working with a factoring company or an MCA company, my bet is it is an MCA based on what you are saying.
      4. Consult your attorney and then make the best decision.

    My strong bet would be you have the ability to pay the subs, suppliers and vendors to protect your project.  Any of the money after making the payments to the suppliers and other subs that may be owed to the subcontractor would then be in question or fall to the subcontract agreement. You have the right to protect your project.  the key thing is to determine if your company signed anything directly with the financials services company.

    ...Read more...



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    Scott Wolfe J.D., Loyola College of Law
    CEO & Founder
    Levelset
    New Orleans LA
    (866) 720-5436
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