Assignment for the Benefit of Creditors (ABC)?
The best course of action for businesses in financial trouble may involve selecting between a reorganization and liquidation. A trusted lawyer can be essential in selecting the best strategy for your company, as there are numerous solutions available to businesses, each with advantages and disadvantages.
An Assignment for the Benefit of Creditors, or “ABC”, is one of the options available if a reorganization is not practical.
The ABC Process
When dealing with an ABC, the company transfers all of its possessions and liabilities to the assignee. The assignee then liquidates the assets and distributes the earnings to the business’s creditors. The assignee is typically a company that specializes in such transactions. The assignee is to maximize the value of the assets as a fiduciary duty to the creditors. As a result, they frequently try to sell the whole thing while it’s still operating or even carry on with it business after the ABC has started.
State law rather than federal law governs an ABC. It is typically a quicker and more private process because it does not call for a court filing. Professional assignees may be able to work with a wider range of assets (including intellectual property) than a bankruptcy trustee and generally have more flexibility in selling the company’s assets. Due to these factors as well as their capacity to act more quickly than they would in bankruptcy, assignees are frequently able to pay more money than a bankruptcy trustee for the business’s assets.
ABCs can usually produce better outcomes for creditors than bankruptcy because the overall costs are typically lower than in bankruptcy.
The owners of businesses run some risks when faced with an ABC. In opposition to bankruptcy, an ABC does include an automatic stay, allowing creditors to pursue collection efforts during the proceedings. Although assignees can usually thwart such attempts, it may be more difficult than in bankruptcy to move forward with an ABC without the backing of the creditors.
Creditors with outstanding claims may continue to pursue those claims since there is no discharge of claims that are not fully paid, unlike in bankruptcy. Due to this, ABCs are typically not a wise choice for unincorporated enterprises or companies where the owners have provided personal guarantees for the obligations of the company.
Additionally, corporations that have been careless in upholding the formalities required to preserve the restricted liability of the corporate form are not a good candidate for ABCs.