Contractor All-Rite Construction, Inc. filed for Chapter 7 bankruptcy on May 3, 2021, with debts stemming from multiple construction liens and a number of subcontractors and materials suppliers counted among its creditors.
In addition, the Garfield, New Jersey contractor is still embroiled in an ongoing lawsuit with Servpro of Port Jefferson that dates back to 2019, as well as four additional pending legal actions.
Chapter 7 bankruptcy is sometimes known as liquidation bankruptcy, as it doesn’t provide for the filing company to develop a plan of repayment and restructuring. Instead, it requires the filing company to have its nonexempt assets liquidated in order to pay back its creditors.
All-Rite Construction’s filing listed no assets and a total of $8.3 million in liabilities. In total, it names seven secured and 235 unsecured claims, with a large number of these claims being debts to contractors and suppliers.
Of the secured claims, four out of the listed seven are debts relating to mechanics liens, which come to a total of $35,691.46.
Learn more: New Jersey Mechanics Liens: Everything You Need to Know + Free Forms
While the filing’s 21 priority unsecured claims are all for state revenue services (coming to a total of $2.5 million), a very significant number of the 214 listed unsecured claims are debts to contractors — worth noting given that the total number of unsecured claims is $2.78 million.
All-Rite Construction’s debts to contractors and suppliers range from smaller values of around $1,000 to amounts upwards of $100,000. Though most of these individual claims are less than $50,000, it also has notably larger debts — including particularly striking claims of $122,195 by Borowide Electrical Contractors, Inc. and $139,645 by Leeda Construction, Inc.
All-Rite Construction notes in the filing that its gross revenue and net income from January 1 to December 31, 2019, was a loss of $1.63 million.
All-Rite Construction’s legal struggles may highlight a larger impact for New Jersey and New York contractors
The recent legal actions listed in the bankruptcy filing point to the possible impact of All-Rite Construction’s difficulties on the larger construction community in New Jersey and New York.
Three of the four other pending legal actions listed as part of All-Rite Construction’s bankruptcy filing also involve contractors and suppliers, with litigation relating to Feldman Lumber US LBM, LLC and Brookwood Builders, Inc.,
In an as-yet unresolved case, Servpro of Port Jefferson sued All-Rite Construction on July, 24, 2019 for non-payment amounting to $67,820.86.
Servpro claims that it was contracted in July 2018 to provide water damage restoration services to an All-Rite Construction worksite, completing this work on July 31, 2018. However, at the time of filing, it had not been paid by All-Rite Construction for its work — an issue that has yet to be resolved despite the lawsuit.
In a similarly-prolonged issue of non-payment, a particularly notable lawsuit filed by attorneys Norris McLaughlin, P.A. on September 4, 2020, alleges that All-Rite Construction has failed to pay $202,376.64 in debts. Norris McLaughlin represented All-Rite Construction in multiple instances, during which time it pursued claims against subcontractors for breaches of contract and provided defenses against a mechanics lien.
Though the two parties’ contract was agreed to on May 17, 2017 — in which it was agreed that All-Rite Construction would be liable for all costs and expenses of the litigation — Norris McLaughlin alleges that they have received no payment despite issuing 39 separate invoices between April 8, 2019, and March 11, 2020.
Norris McLaughlin’s claims perhaps foreshadowed the difficulties that have led to All-Rite Construction’s bankruptcy. According to the lawsuit, All-Rite Construction “made repeated promises that [it] would pay the outstanding balance due,” and agreed to a payment plan which was not followed — promises that were intended, as Norris McLaughlin claims, to ensure that All-Rite Construction retained its legal representation.
All-Rite Construction was pursuing claims against subcontractors and mechanics liens during this period, which Norris McLaughlin maintains resulted in “settlements benefitting All-Rite Construction,” so it’s notable to consider the impact that its non-payment had on other contractors.
Learn more: Collections, Arbitration & Litigation Disputes in Construction