Protecting Payments on Construction Projects from Bankruptcy Estate Claw-Backs by Karen Stemland On a construction project , if a contractor or subcontractor is at risk of bankruptcy, lower-tier subcontrac-tors or suppliers may refuse to furnish labor or supply goods or services absent payment protection. To protect payments, the transaction will need to be structured to prevent interference from the potentially bankrupt entity. Though historically contractors and owners used joint check agreements to provide such protection, this approach recently has failed to protect the payee due to potential payment claw-backs by bankruptcy estates. This article ad-dresses best practices for structuring transactions on construction projects to minimize the bankruptcy estate’s ability to reclaim transaction funds. www.vsb.org I. Bankruptcy Estates May Reclaim Payments Deemed “Preferences,” Subject to Exceptions Subject to certain exceptions, Section 547 of the Bankruptcy Code allows a debtor or trust-ee to recover or “claw-back” certain payments or “preferences” made to a creditor a short time (usually 90 days) before a bankruptcy fi ling. 1 To establish a voidable preference, a bankruptcy trustee must prove the following fi ve elements: (1) a transfer of an interest of the debtor in property to or for the benefi t of a creditor; (2) for or on account of an antecedent debt owed by the debtor before such transfer was made; (3) made while the debtor was insolvent; (4) made on or within 90 days before the date of the fi ling of the petition (or be-tween 90 days and one year for insiders); and that (5) enables such creditor to receive more than such creditor would receive if: 29 CONSTRUCTION LAW AND PUBLIC CONTRACTS SECTION | Vol. 68 | June 2019 | VIRGINIA LAWYER