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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.
Builders Trust Fund Payments Bruce Nathan Business Credit; Nov/Dec 2008; 110, 10; Docstoc pg. 32 Reproduced with permission of t
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