If you're a contractor or construction professional in Colorado, you may wonder about what happens when a party fails to pay you for your project contributions. The Colorado Trust Fund Statute protects you from this type of fraud. Read on to learn more.
The Colorado Trust Fund Statute at a Glance
The Colorado Trust Fund Statute provides that all funds disbursed to any contractor under any building, construction, or remodeling contract or on any construction project shall be held in trust for the payment of:
Essentially, the statute is designed to ensure that all parties who contribute work, materials or other services to a project receive their fair compensation outlined in the original labor contract. However, they aren't the only ones that can file a claim. Owners who pay general contractors who fail to pay other workers on the contract can also take the matter to court.
When Can an Owner or Subcontractor File a Claim?
A wronged party can file a claim even without an official lien for the work in question. The Colorado Trust Fund Statute treats a violation as theft. The thief (non-paying contractor) must knowingly take possession of the property of another (subcontractors, materials suppliers, etc.) unlawfully through theft or deception.
Who Can be Found Guilty of Violating the Statute?
Accused parties found guilty of violating the statute can incur treble damages (triple the amount of the actual damages awarded to the plaintiff) and additional attorney fees. In these cases, bankruptcy cannot clear the burden of debt. In addition, a surety or other individual who manages the debtor's finances can be held liable for all payments owed and incurred. This includes such parties as:
How Can Wronged Parties Prove the Debt is Non-Discharged?
Owners or subcontractors filing a claim under the statute must prove that: 1) a fiduciary relationship existed between the contractor and the uncompensated downstream party, and 2) the debt owed is attributable to the failure of the contractor to honor the terms of the labor contract in the course of the fiduciary relationship. A technical or express trust is required to demonstrate a fiduciary relationship. The Colorado Trust Fund Statute provides such a trust.
What If the Liable Party Experiences Bankruptcy?
Due to the nature of the violation, non-paying contractors cannot claim bankruptcy to discharge their debt even if they are a corporation or limited liability company. Likewise, individual officers who benefited from the contractor's failure to pay downstream parties are also subject to fines and punishment without the protections of limited liability or bankruptcy clauses. Thus, even if the liable operation goes bankrupt, its directors remain obligated to pay creditors under fiduciary terms.
How Can Contractors Avoid Violating the Statute?
Contractors responsible for paying laborers downstream must compensate said laborers to the full agreed upon amount before using the funds for personal benefit. If called upon, they must be able to provide documentation proving when and how the funds were allocated. Similarly, directors or managers of a limited liability company or corporation accused of non-payment must prove that no part of the owed funds was used for personal gain. Failure to provide adequate records can result in severe penalties.
The knowledgeable and diverse attorneys at Miller & Law, P.C. work tirelessly to help construction professionals like you get the compensation you deserve. We abide by the highest standards of professionalism and ethics to get to the bottom of every case. Please feel free to contact us to discuss your Colorado contracting case resolution needs.