Real Estate

Bankrupt Construction Startup Katerra Sued By Former Employees

Three former Katerra employees are suing the company for not giving them enough notice before being laid off, according to a new report by The Real Deal.

On June 6, after announcing an end to U.S. operations and mass layoffs, the Softbank-backed construction startup filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas.

As reported by The Real Deal, per the Worker Adjustment and Retraining Notification Act, if a plant is closing and mass layoffs are coming, employers with 100 or more employees must provide written notice at least 60 day in advance.

While there are exceptions to the rule, the class-action lawsuit, which aims to cover a class of around 700 former employees, alleges that Katerra was in the position to provide advance notice but failed to do so, owing employees unpaid wages and accrued vacation time, according to The Real Deal.

Founded in 2015, Katerra set out to increase efficiency in construction through the use of technology. Since then, it has commissioned prefabrication methods, developed a software platform, and acquired other companies.

But by 2019, leadership turnover and pulled projects started raising eyebrows. In December 2020, the Japanese mega fund SoftBank poured an additional $200 million into the startup following a $2 billion backing to save it, for the time being, from seeking bankruptcy.

According to the filing earlier this month, the value of Katerra’s assets range between $500 million and $1 billion. It owes anywhere from $1 billion to $10 billion

“The rapid deterioration of the company’s financial position is the result of the macroeconomic effects of the COVID-19 pandemic on the construction industry, inability to procure bonding for construction projects following the unexpected insolvency proceedings of Katerra’s former lender, and unsuccessful attempts to secure additional capital and business,” a statement on Katerra’s website reads. 

During the bankruptcy process, the company says it will be offloading some assets and has secured $35 million in Debtor-in-Possession financing to fund operations. The company also stated that projects in several U.S. states will proceed and international operations will not be impacted. 

Katerra did not respond to Inman’s request for comment at the time of publishing.

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