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Builders Trust Fund Payments

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The US Fifth Circuit Court of Appeals, in N.A. Flash Foundation Inc, recently addressed the impact of the Texas construction trust fund statute on a general contractor's payments, within 90 days of its bankruptcy filing, to a subcontractor that had provided goods for a construction project in Texas. The Fifth Circuit upheld the lower court rulings denying preference exposure because the general contractor's Chapter 7 Trustee could not satisfy the requirement contained in Bankruptcy Code Section 547(b)(5) that the subcontractor had received more from the alleged preference payments than the subcontractor would have received in a Chapter 7 liquidation involving the general contractor. The court concluded that the subcontractor would have obtained full recovery on its claim, as a result of its Texas construction trust fund rights, in any hypothetical Chapter 7 case involving the general contractor. The Fifth Circuit Court of Appeals has spread good cheer to suppliers of material and labor for real estate construction projects.

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