Multiple LLCs creates bankruptcy confusion

[Exit282]

Jurisdiction

Michigan

We entered a contract with a builder and gave him $40K which he said he used to purchase building supplies. He hasn't yet done any work beyond that and we do not have possession of the materials; haven't even seen them to even know if he did what he said. The contract and recipient of the monies was (hypothetically) Joe's Building, LLC. Today I get word through the grapevine that he's in business trouble. I do some investigating online and discover a different LLC, let's say Tom's Construction, LLC - one we've never heard of - that uses the same address and has the same Resident Agent as Joe's Building, LLC has filed for bankruptcy.

I then go to the State's online database of businesses and find that Tom's Construction, LLC filed for dissolution back in 2019. I did find online where it's possible for a dissolved LLC to file for bankruptcy (weird to me, but I digress) and that, apparently, is what he did. My questions are: why would someone do that (file under a dissolved LLC)? Also - since our contract is with Joe's Building, LLC and NOT the one filing bankruptcy, where is our $40K and/or the materials in all this? We were not listed as creditors in the Chapter 7 filing of Tom's Construction. The 341 meeting is in six days - should I go if we don't hear from him?

 

[Zigner]

My questions are: why would someone do that (file under a dissolved LLC)? Also - since our contract is with Joe's Building, LLC and NOT the one filing bankruptcy, where is our $40K and/or the materials in all this? We were not listed as creditors in the Chapter 7 filing of Tom's Construction. The 341 meeting is in six days - should I go if we don't hear from him?

Your questions (except the last) are not something that is knowable by random, uninvolved strangers on the internet. If it were me, I'd show up at any meeting about this matter. If $40k was on the line, I'd probably also be talking to an attorney.

 

[army judge]

why would someone do that (file under a dissolved LLC)?

Any answer to the question posed above would only be speculation.

since our contract is with Joe's Building, LLC and NOT the one filing bankruptcy, where is our $40K and/or the materials in all this?

I suggest you report this matter to law enforcement agency with jurisdiction over the area where the events took place.

You could alternatively reach out to the Michigan Attorney General:

Building and Remodeling - Advice for Homeowners
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[Zigner]

Has the contractor actually failed to perform on the contract?

 

[zddoodah]

We entered a contract with a builder and gave him $40K

A contract with a builder to do what, exactly? Also...

On what date did you and the builder sign the contract?
On what date did you make the payment?
What is the date specified in the contract on which work was/is supposed to begin?
What is the date specified in the contract on which work is supposed to be complete?

which he said he used to purchase building supplies. He hasn't yet done any work beyond that

Purchasing supplies isn't doing work. You seem to doubt that the contractor actually bought the supplies. If that's the case, why do you doubt that?

haven't even seen them to even know if he did what he said.

Have you asked to see them? If so, what response did you get? If not, why not?

The contract and recipient of the monies was (hypothetically) Joe's Building, LLC. Today I get word through the grapevine that he's in business trouble.

He who? Joe's Building, LLC is a limited liability company - an "it," not a "he."

My questions are: why would someone do that (file under a dissolved LLC)?

We can only speculate, but who cares? As you noted, your contract is with Joe's, and you had never heard of Tom's. Moreover, you've given us no information about any relationship between the two entities other than a common address (a common registered agent is beyond a common thing).

Also - since our contract is with Joe's Building, LLC and NOT the one filing bankruptcy, where is our $40K and/or the materials in all this?

Not sure I understand the question. As phrased, you're asking a factual question that no one here has any chance of answering intelligently.

We were not listed as creditors in the Chapter 7 filing of Tom's Construction.

Given that you have not transacted any business with Tom's and had previously never heard of the company, this makes perfect sense.

The 341 meeting is in six days - should I go if we don't hear from him?

Again, who is "him"? You've provided no reason why you should attend a 341 meeting for an entity with which you've not transacted business and of which you had never previously heard.

You wrote in the subject header of your post that there is "bankruptcy confusion," but I don't see it. Your contract is with Joe's. If Joe's is in breach of the contract, consult with an attorney about your options. The BK of Tom's is not apparently relevant.

 

[Exit282]

Both the LLC's are owned/operated by the same person. I have copies of both of their Articles of Incorporation. Both are construction companies. Someone from the local credit union (that's processing a loan for us to complete the work involving the $40K in materials) called today and told me they know he (referring to the owner of the LLC) "would not be building anything going forward". He was not comfortable giving me details beyond that so I started digging online. That's where I found the bankruptcy filing for the LLC we don't have a contract with - but again is owned/operated by the same person as the one we do. I get the legality of my contract not being with the LLC that's filing for bankruptcy, but there's a connection between the two. I just have been around long enough to know it's highly unlikely that one LLC is filing for bankruptcy while the other is operating in the black and sitting on piles of cash and (my) materials and equipment. I posted seeking opinions on my situation and whether or not anyone sees a way (or a need) to be proactive.

 

[Zigner]

At this time, has the contractor failed to perform according to the contract?

 

[adjusterjack]

Speculation: Joe is a crook and you are out $40,000.

I guess it takes a mistake like that to learn that you never give money to a contractor up front.

If a contractor doesn't have credit with his suppliers then you either send him away or you buy the materials yourself, have them delivered to your site, and pay the contractor as he completes each stage of the work.

Pay on completion is the only way to get a contract to show up and work, no matter how reputable they seem to be.

 

[despritfreya]

1. It is not unusual for someone to set up more than one LLC. I have a number of construction company clients whose principals have numerous LLCs. Typically only one or two of them actually operate.

2. You are not a creditor of Tom's Construction Company, LLC unless, a) your contract is with that entity (which you indicate it is not) or, b) the funds you paid to Joe's Building, LLC were directly and traceably placed into the bank account of Tom's Construction Company, LLC. This is highly unlikely.

3. Assuming Joe's Building, LLC is in breach of the contract you signed, what most likely happened is that it used your money to fund someone else's project. While this is "wrong" it happens all the time.

4. Your State most likely has a Registrar of Contractors. If Joe's Construction Company, LLC is in breach of your contract, contact your State's ROC. It may have a recovery fund. Additionally, if the contractor had a bond (check with the ROC) you may be able to put in a claim against the bond to try to recover some of your money.

5. Since we do not know the exact circumstances of the situation, your best bet is to talk to a local attorney.

6. Edit to add: If Joe's Construction Company actually files bk, look at 11 USC 507(a)(7). Although the recovery as a "priority" creditor is limited (anything over the amount is a general unsecured claim), it is something to look at if Joe's files bk.

Des.

 

[Exit282]

1. It is not unusual for someone to set up more than one LLC. I have a number of construction company clients whose principals have numerous LLCs. Typically only one or two of them actually operate.

2. You are not a creditor of Tom's Construction Company, LLC unless, a) your contract is with that entity (which you indicate it is not) or, b) the funds you paid to Joe's Building, LLC were directly and traceably placed into the bank account of Tom's Construction Company, LLC. This is highly unlikely.

3. Assuming Joe's Building, LLC is in breach of the contract you signed, what most likely happened is that it used your money to fund someone else's project. While this is "wrong" it happens all the time.

4. Your State most likely has a Registrar of Contractors. If Joe's Construction Company, LLC is in breach of your contract, contact your State's ROC. It may have a recovery fund. Additionally, if the contractor had a bond (check with the ROC) you may be able to put in a claim against the bond to try to recover some of your money.

5. Since we do not know the exact circumstances of the situation, your best bet is to talk to a local attorney.

6. Edit to add: If Joe's Construction Company actually files bk, look at 11 USC 507(a)(7). Although the recovery as a "priority" creditor is limited (anything over the amount is a general unsecured claim), it is something to look at if Joe's files bk.

Des.

OMG, thank you!! Exactly the kind of answer I was hoping for.

 

[adjusterjack]

3. Assuming Joe's Building, LLC is in breach of the contract you signed, what most likely happened is that it used your money to fund someone else's project. While this is "wrong" it happens all the time.

Heck. I've known that for 40 years and never pay up front.

 

[zddoodah]

I posted seeking opinions on my situation and whether or not anyone sees a way (or a need) to be proactive.

Unless you provide relevant facts, there isn't much here that anyone can suggest other than that you consult with a local attorney.

 

[Redemptionman]

It is civil you will have to be a part of those seeking reimbursement but since you paid up front there may not be much which can be done. As someone said above going after your local licensing contractor boards is probably the best course especially if there are several similarly situated people. Welcome to the world of unscrupulous business owners who carry limited to little insurance bonds to just meet state minimums who know when they get debts they don't want to or can not pay they just de-solve the LLC and create another one to scam away some more.

You need to check with your local state attorney generals office for if this person did not run the credit under the LLC then the owner/ person can be held liable. This is called being judgement proof and the scammer loves this since bankruptcy wipes his slate free. People like this eventually get what is coming to them just takes time.