Assignment for the Benefit of Creditors (ABC)

When a business is facing financial difficulty the business owners/investors must decide whether or not to liquidate and close the company. The business owners have the option of filing for bankruptcy whether Chapter 11 (reorganization) or Chapter 7 (liquidation), both Federal law options, or they have a state court action called an Assignment for the Benefit of Creditors or ABC for short.

An assignment for the benefit of creditors is a formal, voluntary transfer of all or substantially all of business’ assets to an assignee, in trust, to apply the property or its proceeds to the payment of debt. The assignee for the benefit of creditors serves essentially as a non-judicial trustee has fiduciary obligations to creditors. No court intervention is typically involved in an assignment for the benefit of creditors. The assignment for benefit of creditors usually is faster and cheaper than a formal bankruptcy case, particularly when the assets involved might be liquidated quickly. A valid assignment for the benefit of creditors places the debtor’s property in the hands of the assignee and out of the reach of the debtor’s creditors.

Assignment for the Benefit of Creditors Process in Florida:

  • The business (Assignor) enters into a contract whereby it transfers all rights, titles, interests, custody and control of all assets to an independent third-party trustee (Assignee);
  • The Assignee acts as a fiduciary for the creditors by liquidating all assets and then distributing the proceeds to the creditors;
  • Secured creditors are paid from proceeds derived from their security, relieving them of the legal costs and burden of foreclosing and selling their collateral;
  • In this process, the unsecured creditors cannot follow the assets that are sold;
  • A formal claims process is established for unsecured creditors, thus allowing the assignee to limit and control ongoing liabilities of the company
  • Assignee is able to review, control, clean-up and work toward closure to the corporate situation before and during the sale of assets.

Benefits of an Assignment for the Benefit of Creditors:

  • The Assignee is selected by the company
  • In a bankruptcy a trustee is automatically appointed by the court.
  • There is usually less notoriety than with a bankruptcy;
  • The Assignment for the Benefit of Creditors (ABCs) is cost effective;
  • The process is less formal, with few or no court hearings
  • Typically the assignor needs to appear for a deposition and nothing more.
  • Asset sales can occur quickly, allowing for a higher price under such circumstances;
  • A third party can acquire title to the assets in a purchase transaction;
  • Limited operations can be continued to maximize the remaining value in company;
  • The assignee can arrange the allow the business to continue to operate for a short period of time to do a “cash only” sale in order to liquidate and get the maximum result of return.

The assignment for the benefit of creditors is an option that a business thinking of closing its doors should consider. The assignment offers both benefits and detriments when compared to a liquidation bankruptcy and the decision should only be made after consulting an assignment for the benefit of creditors attorney or a bankruptcy lawyer.

If you are thinking of closing your business operations and would like to discuss liquidation proceedings then please contact Shmucher Law, PL to schedule a free consultation. We can be reached by calling 305.741.5553 or 954.309.5559.

Shmucher Law, PL, a bankruptcy law firm, represents debtors, creditors, and trustees in bankruptcy matters throughout Broward and Miami-Dade counties.

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