eNews September 19, 2019

In the News

September 19, 2019

Updates to Louisiana Mechanic’s Lien Laws: Immediate and Future Changes for Private Projects

Eastern European B2B Credit Sales Increase

Cybercriminals Step up Their Game with Voice Manipulation Scam

Illinois Expands Protections Under the Contractor Prompt Payment Act

Updates to Louisiana Mechanic’s Lien Laws: Immediate and Future Changes for Private Projects

The Louisiana Legislature met recently, bringing changes to current lien laws involving private construction projects. The updates come from HB 203, which was passed by the Louisiana legislature. These changes will affect private projects only, with some changes becoming effective immediately, and others having an effective date of January 1 2020.

Unlike most states, Louisiana does not have a Little Miller Act, said Daniel Lund, a partner with Phelps Dunbar LLP in New Orleans, Louisiana. Since the state does not have a Little Miller Act, creditors must follow statutory laws that have been written, revised and revised again over the course of many dozens of years. 

“I will contend there’s more red ink on the documents that were recently revised than there is remaining black ink,” Lund said. “That said, the myriad changes don’t change most of the basic requirements or timing for liens, but it's an open book test: read the rules each time, to ensure the rules are being met.” This is important, Lund said, in part because some of the changes to the law take place immediately; other portions of the revisions apply only to cases filed after January 1, 2020.

One significant change in the law addresses liens on construction projects for which a Notice of Contract is filed. These notices are designed to be filed when the project begins. The notices are filed in part so third parties⁠—such as a potential mortgage holder⁠—know based on public records of any potential liens on the properties under construction. Under the old law, if a “notice of termination”⁠—for example, a certificate of substantial completion⁠—was not filed on a project for which the Notice of Contract had been timely filed, the duration for filing most mechanics lien on the project never ended. According to Lund, under the new legislation, six months is the maximum amount of time in which a lien can be filed, following substantial completion or abandonment of a project. Thirty days is still the rule for liens filed on projects for which the Notice of Contract is timely filed and a notice of termination is recorded in the public records, and 60 days for projects on which no Notice of Contract is filed.

The threshold for requiring a Notice of Contract in order for a general contractor on a private construction project to maintain its lien rights has been raised from $25,000 to $100,000. Previously, general contractors only had lien rights if they recorded a Notice of Contract for a contract that was $25,000 or more. If the project has a contract for $99,999, a Notice of Contract does not have to be filed.

Lessors of movables will have more flexibility in the lien filing process in 2020. Instead of filing a notice per piece of equipment, notices can instead be filed per project, simplifying the process. A copy of the contract for the project does not need to be sent either; a description of the project is now sufficient.

Deadlines have also been amended for lessors of movables, extending the former 10-day notice⁠—by the lessor to the property owner⁠—deadline to 30 days. Should the 30-day deadline be missed, the notice can still be given, along with a corresponding lien eventually filed, if necessary. If filed late, the claimant will lose only the ability to lien for the lease charges incurred during the time preceding the belated notice. For the lookback period, a lien can be filed at any point during the project, but the lien will only be covered from the date the notice of the project was sent.

Some of the updates in the law are entirely practical, including, for example, a provision which allows notices called for by the statutory scheme to be provided electronically.

“It’s atypical that the legislature makes these types of changes because the statutes are already so complicated,” Lund said. “Nonetheless, there is a prevailing notion among attorneys and business people who work in this area that the entire set of lien statutes for both public and private projects should be simplified.”

—Christie Citranglo, editorial associate

Fall Conferences

Network and Learn with Credit Professionals in Your Area

Plan to learn, expand your professional network by meeting colleagues from your geographic area – there’s still time to register!

All South Credit Conference
September 22-24, 2019
Hyatt Regency San Antonio Riverwalk
San Antonio, TX
Hosted by: NACM Southwest

Western Credit Conference and CFDD National Conference
October 23-25, 2019
Sheraton Portland Airport Hotel
Portland, OR
Hosted by: NACM Commercial Services in partnership with CFDD National

For more information and to register, contact the local Affiliate or view regional conferences.

Eastern European B2B Credit Sales Increase

Business-to-business (B2B) sales made on credit in Eastern Europe are on the rise, bringing higher credit risk and other economic factors affecting several countries. According to credit insurer Atradius, B2B credit sales are more than two-thirds of the total value of transactions. The Payment Practices Barometer surveyed Romania, Slovakia, the Czech Republic, Poland, Turkey, Bulgaria and Hungary.

The total value of B2B sales in the bloc sat at under 40% in 2018 and just over 40% between 2015 and 2017. “The sharp increase in the proportion of credit-based sales in Eastern Europe is highly likely to be caused by business’ efforts to sustain domestic demand, which appears to be the key driver of economic growth in the region,” states Atradius. “It may also be a reflection of business’ desire to enhance their competitiveness in foreign markets and gain a greater export market share.”

Slovakia was the most inclined to offer credit to customers at more than 91%, while Bulgaria was the least likely with roughly a third of B2B sales made on credit. Payment terms are also on the rise across Eastern Europe, averaging 37 days from invoicing—three days longer than in 2018. The higher number is in part due to Turkey having 59-day terms for B2B customers. Hungary, Bulgaria, the Czech Republic and Slovakia were each under the 37-day average.

Invoice-to-cash turnaround times improved in the region from 55 days in 2018 to 48 days this year because more than 73% of invoices were paid on time compared to 64% last year. However, a quarter of the total value of supplier invoices were outstanding, and Poland was the only country to have an increased cash turnaround time. The most common credit management tool used by suppliers surveyed by Atradius was assessing buyer creditworthiness followed by dunning letters/outstanding invoice reminders.

“[A]s the economic climate becomes more volatile and unstable, it is getting more difficult to perform a thorough assessment of the credit risk connected to selling on credit,” said Thomas Langen, senior regional director Germany, Central and Eastern Europe, of the report.

Regionally, credit risk was most impacted in the wholesale/retail/distribution sector. Polish construction, Czech transportation and Turkish agri-food are among the most affected sectors in terms of credit risk. Business size was also a factor in payment terms. Small- and medium-sized enterprises (SMEs) had payment terms averaging 39 days from invoicing, and larger firms had payment terms to B2B customers at 50 days. Large enterprises were also slowest to collect past due payments at 62 days. Meanwhile, SMEs were at 51 days.

—Michael Miller, managing editor

webinar enews banner 091119

Step-by-Step Guide to Insolvencies in the UK and France

September 24: Insolvency Proceedings in the UK
According to forecasts, corporate insolvencies are expected to grow, with Western Europe projected to lead the increase. With the U.K. experiencing difficult business conditions, join Larry Coltman, a partner in the Birmingham office of Fieldfisher, on Sept. 24 as he provides a step-by-step look at insolvency procedures in the U.K.

September 26: Insolvency Proceedings in France
Forecasts predict 55,000 insolvencies to happen in France before year end. On Sept. 26, join Céline Lustin-Le Core and Anke Sprengel, of Endrös-Baum Associés in Paris, as they cover the ins and outs of what happens before, during and after an insolvency occurs in France.

For more information and to register for the webinars, please call 410-740-5560 or view the event calendar.

Cybercriminals Step up Their Game with Voice Manipulation Scam

The brilliance behind certain technological advancements is baffling. Many tasks that once required computing equipment the size of a room can now be done in the palm of your hand with a cell phone. However, despite technology’s growing benefits, one could argue it is becoming too smart for its own good.

Take, for example, a recent cybercrime in Great Britain that used advanced artificial intelligence (AI) software to con a German energy company out of $243,000. In one of the first cases of its kind, several news outlets reported, cybercriminals used AI to mimic the voice of the company’s chief executive to trick a parent company’s CEO into transferring the funds to a Hungarian supplier. Where the case gets more interesting is the fact the technology was not only able to imitate the chief executive’s slight German accent, but also his inflection. The incident was later reported to law enforcement as well as the company’s credit insurer, Euler Hermes.

“The victim director was first called late one Friday afternoon in March, and the voice demanded he urgently wire money to a supplier in Hungary to help the company avoid late-payment fines,” The Washington Post reported earlier this month. “The fake executive referred to the director by name and sent the financial details by email. … After the thieves made a second request, the director grew suspicious and called his boss directly. Then, the thieves called back, unraveling the ruse.”

After breaking down a person’s voice into sounds and syllables, the technology uses these components to say new things while maintaining “speech patterns, pitch and tone,” The Post states. Although Euler Hermes was unable to locate the wired funds, the credit insurer will cover the company’s claim.

“Being a credit insurer, we would say that having a credit insurance policy would be a much easier way to sell into businesses,” Dan North, chief economist of Euler Hermes North America, told NACM. “There’s a strong demand for it. Times have been good. We have a risk appetite. Our business is quite strong.”

According to The Post, many of these voice-manipulating systems are available for free online, so knowing how to spot such advanced fraudulent activity is becoming a necessary skillset for credit managers. New cybercrimes require new security measures, which can be implemented in numerous ways.

Team up: Talk to your employer about recent cybercrimes and any other fraudulent activity you have experienced. Perhaps they will do more research on how to best protect the company’s finances. Protecting its business from cyberthreats is becoming a top priority for Comcast Business after announcing a partnership with cybersecurity experts Fortinet and Akamai on Sept. 5. The partnership is expected to increase cybersecurity for businesses of all sizes, ranging from small- to medium-sized businesses through enterprises.

Stay vigilant: Just because cybercriminals are finding new ways to steal money doesn’t mean they are abandoning old strategies. Business email compromise (BEC) scams are still very relevant as fraudsters impersonate company employees to retrieve funds. On Sept. 6, cybersecurity firm Agari released data in conjunction with the FBI’s Internet Crime Complaint Center that found more than $13.5 billion was stolen due to BEC between 2013 and 2018. The process involves cybercriminals who are “actually infecting an email account and using that to reply to someone to ask for an invoice to be paid, or a supplier to be paid,” Agari CEO Patrick Peterson told Yahoo Finance.

—Andrew Michaels, editorial associate

FCIB Summit
Connect With Someone Who Could Impact Your Career

FCIB’s International Credit & Risk Management Summit in Hamburg, Germany, provides an opportunity to learn and grow with like-minded people and industry peers. Be a part of it and hear from the presenters about new techniques and technology, while also taking advantage of the many opportunities to ask questions and build on discussions. In the expo, learn about products and services that support your profession by speaking with exhibitors and asking questions about industry trends and today’s business climate.

Strengthen your career and your company by attending this year’s International Credit & Risk Management Summit in Hamburg.

Learn more and register at www.fcibglobal.com/summit-home.html.

Illinois Expands Protections Under the Contractor Prompt Payment Act

The Illinois Contractor Prompt Payment Act, 815 ILCS 603/1, et seq. (the “Act”) was first enacted in 2007 and designed to safeguard contractors and subcontractors on private projects by providing a mechanism to expedite payments for work performed. The Act applies to all private construction projects in Illinois, except those involving single-family residences or multiple-family residences with 12 or fewer units in a single building. With the Act, Illinois joined a growing number of states that had enacted similar legislation.

On Aug. 20, 2019, Illinois amended the Act and again joined a growing number of states that are expanding their protections for contractors, this time by restricting the amount of retainage that may be withheld on a construction project. The amendment, codified at 815 ILCS 603/20, imposes a 10% cap on the amount of retainage that may be withheld and reduces that cap to 5% once the project is 50% complete. Specifically, the Act provides:

"No construction contract may permit the withholding of retainage from any payment in excess of the amounts permitted in this Section. A construction contract may provide for the withholding of retainage of up to 10% of any payment made prior to the completion of 50% of the contract. When a contract is 50% complete, retainage withheld shall be reduced so that no more than 5% is held. After the contract is 50% complete, no more than 5% of the amount of any subsequent payments made under the contract may be held as retainage." 815 ILCS 603/20.

A “construction contract” under the Act “means a contract or subcontract” for the “design, construction, alteration, improvement or repair” of property. Therefore, this cap applies equally to owner-contractor agreements and to contractor-subcontractor agreements, as well as to owner-architect and design agreements. Also, because the terms “contractor” and “subcontractor” have the same broad meanings ascribed to them by the Illinois Mechanics Lien Act, this cap equally applies to construction managers, design-builders, sub-subcontractors and material suppliers. 

While the amendment is effective immediately, it does not impact contracts entered into prior to Aug. 20, 2019. It will, however, impact any ongoing contract negotiations involving the withholding of retainage. 

The amendment represents a significant victory for contractors, who have long argued that withholding 10% of payments earned until the end of a project negatively impacts their cash flow. The requirement to reduce retainage to 5% once the project reaches its midpoint and thereafter to withhold no more than 5% from subsequent payments will result in an infusion of funds to the contractor and a reduction of an owner’s security from what has been traditionally withheld on construction projects in Illinois. Whether there will be a resulting increase in the prevalence of payment and performance bonds or other forms of security on construction projects remains to be seen. 

The cap presumably is tied to the contract price for determining when the contract has been 50% completed, as opposed to the overall percentage of work actually performed. But for projects where those benchmarks may not be commensurate with each other, this issue could be the subject of contract negotiations between owner and contractor. 

Owners will need to bear the cap in mind when they negotiate construction financing with lenders. For, while the amount of retainage that owners may withhold is now capped, the Act does not apply to construction loans or limit the amount of retainage that lenders may insist on withholding from construction draws. Owners will need to make sure their cash flow requirements for a project are sufficient, in view of what their lenders ultimately insist on withholding.

Reprinted with permission.

Mark Johnson, Esq., is a partner in the Chicago office of Seyfarth Shaw LLP. He is an accomplished construction attorney, having represented owners, general contractors and subcontractors in a variety of disputes. He has both lectured and authored articles on construction-related issues, and previously served as the chair of the Construction and Mechanics Lien Committee of the Chicago Bar Association.

Credit Congress


Be sure to budget NOW for NACM’s 124th Credit Congress & Expo at Caesars Palace, Las Vegas.  
The Early Bird registration rate of $799 will be available till Dec. 6. Hotel rate will be $185 per night + taxes/fees.

Registration will open soon!